Illustrative Financial Statements

Hong Kong Financial Reporting Standards -
Illustrative Financial Statements 2008 aims

to provide useful guidance to preparers of
Hong Kong Financial
financial statements reporting under Hong
Kong Financial Reporting Standards (HKFRS).
Reporting Standards
Hong Kong Financial Reporting Standards – Illustrative Financial Statements 2008

This book contains an illustrative 2008 annual
report prepared by a fictitious reporting entity
(listed in Hong Kong) in accordance with HKFRS
and the disclosure requirements of Hong Kong
Companies Ordinance and Listing Rules.
Furthermore, this book provides a summary Illustrative Financial

of HKFRS which are effective for the financial
year ended 31 December 2008 and those
Statements 2008
that are issued but not yet effective and their
Hong Kong Financial potential impacts, together with a brief update
on Listing Rules and other relevant regulatory
Reporting Standards requirements.
The Illustrative Financial Statements 2008

will help you navigate through the increasingly
complex and changing financial reporting
requirements in Hong Kong. To keep up to
date with the new international accounting
Illustrative Financial developments that will shape Hong Kong
Statements 2008 standard setting in future, please visit the
Deloitte IAS PLUS website (www.iasplus.com).
TAX AND ACCOUNTING SERIES 1794H
cover output with spine 09 4.indd 2 13/1/2009 16:31:22

Hong Kong Financial
Reporting Standards
Illustrative Financial Statements 2008

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HKFRS Illustrative Financial Statements 2008
Foreword
Welcome to the 2008 edition of Hong Kong Financial Reporting Standards – Illustrative Financial Statements.
This publication includes an illustrative 2008 annual report issued by a Hong Kong listed company and a section which
gives a summary of the key changes to Hong Kong Financial Reporting Standards in issue as of 31 December 2008
together with a brief update on Listing Rules and other relevant regulatory requirements.
The International Accounting Standards Board (IASB) promised to provide a "stable platform" until 2009. Most new
standards and amendments to standards issued by the IASB in the recent years will only be effective for annual periods
beginning on 1 January 2009 or after. Since Hong Kong Financial Reporting Standards converged with International
Financial Reporting Standards in 2005, the Hong Kong Institute of Certified Public Accountants (HKICPA) has aligned its
standard setting with the IASB.
Accordingly, the impact of new interpretations and amendments to standards issued by the HKICPA on the financial
statements for the year ended 31 December 2008 is not expected to be pervasive except for entities which are affected
by the following interpretations and amendments:
• HK(IFRIC) - Int 11 HKFRS 2 – Group and Treasury Share Transactions

• HK(IFRIC) - Int 12 Service Concession Arrangements
• Amendments to HKAS 39 Financial Instruments: Recognition and Measurement and HKFRS 7 Financial
Instruments: Disclosures – Reclassification of Financial Assets
Due consideration should be given to standards, amendments or interpretations issued but not yet effective. Entities will
generally be permitted to adopt a standard or an interpretation on a voluntary basis before its effective date. Even if an
entity does not early apply any standard or interpretation, it is required to disclose the potential financial impact under
HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
I would also strongly encourage preparers to respond to the challenge of producing annual reports that are clear,
unambiguous and tailored specifically to the circumstances of the entity. In particular, under the current financial market
conditions, entities should prepare clear and meaningful disclosures to allow users of financial statements to evaluate
the implications of the adverse market environment on its financial statements. In October 2008, the IASB published a
report on measuring and disclosing the fair value of financial instruments in markets that are no longer active. The
report summarises the discussions of the Expert Advisory Panel set up by IASB in May 2008 in response to the credit
crisis. I highly recommend entities to follow the guidance in the report as best practice when preparing its financial
statements.
We have not included a presentation and disclosure checklist (that is applicable to the 2008 financial statements) in this
publication. However, the checklist is available for download on our IAS Plus website (www.iasplus.com).
I hope this publication will help you navigate through the increasingly complex and changing financial reporting
requirements in Hong Kong. In addition, please continue to keep up to date with the new international developments
that will shape Hong Kong standard setting in future via our IAS Plus website (www.iasplus.com).
Stephen Taylor
Partner
Deloitte Touche Tohmatsu, January 2009
1
Contents
Page
What’s new for 2008 financial statements and beyond?
I. Hong Kong Financial Reporting Standards 5
- an overview of new and revised standards, amendments and interpretations 6
- disclosing the fair value of financial instruments in markets that are no 20

longer active
II. Regulatory Updates 23
Illustrative Financial Statements 25
3
Abbreviations
AG = Accounting Guideline issued by the HKICPA
Alt = Alternative
App = Appendix to the Listing Rules
EPS = Earnings per Share
GEM = Growth Enterprise Market of the SEHK
GR = Rules Governing the Listing of Securities on the GEM (the GEM Rules)
HKAS(s) = Hong Kong Accounting Standard(s) issued by the HKICPA
HKFRS(s) = Hong Kong Financial Reporting Standard(s) issued by the HKICPA
HIBOR = Hong Kong Inter-Bank Offer Rate
HKICPA = Hong Kong Institute of Certified Public Accountants
HK-Int = HK Interpretation
HK (IFRIC)-Int = HK (IFRIC) Interpretation
HKSA(s) = Hong Kong Standard(s) on Auditing issued by the HKICPA
HK (SIC)-Int = HK (SIC) Interpretation
IAS(s) = International Accounting Standard(s)
IASB = International Accounting Standards Board
IFRS(s) = International Financial Reporting Standard(s)
IFRIC = International Financial Reporting Interpretations Committee of the IASB (also refers to
individual interpretations issued by IFRIC)
Preface = Preface to Hong Kong Standards on Quality Control, Auditing, Assurance and Related
Services
LR = Rules Governing the Listing of Securities on the SEHK (the Listing Rules)
MD&A = Management Discussion and Analysis
PN = Practice Note to the Listing Rules
s = Section Reference, Hong Kong Companies Ordinance
Sch 10 = Companies Ordinance, Tenth Schedule
SFO = Securities and Futures Ordinance
SEHK = The Stock Exchange of Hong Kong Limited
4
What’s new for 2008 financial statements and beyond?

I. Hong Kong Financial Reporting Standards
Introduction
This section outlines all new and revised standards, amendments and interpretations that are effective for the financial
year ended 31 December 2008 and later accounting periods which were issued by the HKICPA as at 31 December 2008,
so as to provide readers with a convenient reference when considering their implementation.
In July 2006, the IASB acknowledged that entities adopting IFRSs have undergone a period of enormous change in
2005. In order to provide a further period of stability while the changes are fully absorbed by reporting entities, the IASB
has made a commitment not to require the adoption of new standards under development or any major amendments to
existing standards before 1 January 2009. Although entities are expected to have some breathing space before 1
January 2009, there are a number of interpretations issued by the IFRIC which became effective before 1 January 2009.
Equivalent interpretations have also been issued by the HKICPA.
HK(IFRIC) – Int 11 HKFRS 2 – Group and Treasury Share Transactions, which is effective for accounting periods
beginning on or after 1 March 2007, affects the accounting of share-based payments in the separate financial
statements of the parent and its subsidiary. Entities which provide services under service concession arrangements may
be affected by HK(IFRIC) - Int 12 Service Concession Arrangements which prescribes the accounting treatment of an
operator in a service concession arrangement.
In addition, the IASB published the amendments to IAS 39 Financial Instruments: Recognition and Measurement and
IFRS 7 Financial Instruments: Disclosures – Reclassification of Financial Assets on 13 October 2008 in response to the
financial turmoil which resulted from the credit crisis. The HKICPA issued the same amendments to HKAS 39 Financial
Instruments: Recognition and Measurement and HKFRS 7 Financial Instruments: Disclosures on 15 October 2008. The
amendments became effective immediately on issuance.
Entities will generally be permitted to adopt a standard or an interpretation on a voluntary basis before their effective
dates. Where a standard or interpretation is adopted in advance of its effective date, disclosure of that fact is required.
Even where there is no intention to implement a standard or an interpretation in advance of its effective date, entities
need to be aware of new standard or interpretation as they are issued, in order to comply with the requirement included
in HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to disclose in their financial statements the
potential impact of the standard or interpretation in issue but not yet effective.
5
1. An overview of new and revised standards, amendments and interpretations
List of amendments and interpretations that are or have become effective for the financial year ended 31
December 2008
Amendments to standards Effective for accounting Application

periods beginning on
or after:
Amendments to HKAS 39 Financial Instruments: Recognition and Effective immediately on Specific transitional
Measurement and HKFRS 7 Financial Instruments: Disclosures – issuance requirements
Reclassification of Financial Assets
New interpretations Effective for Application

accounting periods
beginning on or after:
HK (IFRIC) - Int 11 HKFRS 2 - Group and Treasury Share 1 March 2007 Retrospective
Transactions
HK (IFRIC) - Int 12 Service Concession Arrangements 1 January 2008 Retrospective

(unless impracticable)
HK (IFRIC) - Int 14 HKAS 19 – The Limit on a Defined Benefit 1 January 2008 Specific transitional
Asset, Minimum Funding Requirements and their Interaction requirements
List of new and revised standards, amendments and interpretations that are issued but not yet effective for the
financial year ended 31 December 2008
New standard Effective for accounting Application

or after:
HKFRS 8 Operating Segments 1 January 2009 Retrospective
Amendments to standards Effective for accounting Application

or after:
Improvements to HKFRSs 1 January 2009 except Retrospective/

for the amendment to Prospective
HKFRS 5 Non-current
Assets Held for Sale and
Discontinued Operations
which is effective for
annual periods beginning
on or after 1 July 2009
Amendments to HKFRS 1 First-time Adoption of HKFRSs and 1 January 2009 Prospective

HKAS 27 Consolidated and Separate Financial Statements – Cost
of an Investment in a Subsidiary, Jointly Controlled Entity or
Associate
Amendment to HKFRS 2 Share-based Payment – Vesting 1 January 2009 Retrospective

Conditions and Cancellations
Amendments to HKAS 32 Financial Instruments: Presentation and 1 January 2009 Retrospective,

HKAS 1 Presentation of Financial Statements – Puttable Financial specific transitional
Instruments and Obligations Arising on Liquidation requirements
Amendment to HKAS 39 Financial Instruments: Recognition and 1 July 2009 Retrospective

Measurement – Eligible Hedged Items
6
List of new and revised standards, amendments and interpretations that are issued but not yet effective for the
financial year ended 31 December 2008 (continued)
Revised standards Effective for accounting Application

or after:
HKFRS 3 (Revised) Business Combinations 1 July 2009 Prospective,

specific transitional
requirements
HKAS 1 (Revised) Presentation of Financial Statements 1 January 2009 Retrospective
HKAS 23 (Revised) Borrowing Costs 1 January 2009 Prospective,

specific transitional
requirements
HKAS 27 (Revised) Consolidated and Separate Financial 1 July 2009 Prospective,

Statements specific transitional
requirements
New interpretations Effective for Application

accounting periods
beginning on or after:
HK (IFRIC) - Int 13 Customer Loyalty Programmes 1 July 2008 Retrospective
HK (IFRIC) - Int 15 Agreements for the Construction of Real 1 January 2009 Retrospective
Estate
HK (IFRIC) - Int 16 Hedges of a Net Investment in a Foreign 1 October 2008 Prospective,

Operation specific transitional
requirements
HK (IFRIC) - Int 17 Distribution of Non-cash Assets to Owners 1 July 2009 Prospective
7
Summaries and potential impacts
A high level overview of the changes to HKFRSs which are effective for the financial year ended 31 December 2008
(section 1.1) and the new and revised standards, amendments and interpretations that are issued but not yet effective
for the financial year ended 31 December 2008 (section 1.2) are provided below. Changes and potential impacts
highlighted are not exhaustive. A detailed review of the new, revised and amended HKFRSs is recommended in order
to identify changes specific to a particular reporting entity.
1.1 Amendments and interpretations that are or have become effective for the financial year ended 31
December 2008
1.1.1 Amendments to HKAS 39 Financial Instruments: Recognition and Measurement and HKFRS 7 Financial
Instruments: Disclosures - Reclassification of Financial Assets
(effective immediately on issuance)
• permit reclassification of certain non-derivative held for trading financial assets (debt and equity financial assets)
which the entity no longer intends to hold for trading purpose out of the fair value through profit or loss (FVTPL)
category subject to specified criteria,
(a) a debt instrument that would have met the definition of loans and receivables (if it had not been required to be
classified as held for trading at initial recognition) may be reclassified out of FVTPL if the entity has the intention
and ability to hold the asset for the foreseeable future or until maturity; and
(b) any instruments other than (a) above may be reclassified out of FVTPL only in 'rare' circumstances.
• financial liabilities, derivatives and financial assets that are designated as at FVTPL on initial recognition under the
'fair value option' cannot be reclassified;
• do not permit reclassification back into FVTPL;
• at the date of reclassification of financial assets out of FVTPL,
¾ all reclassifications must be made at the fair value of the financial asset at that date;
¾ any previously recognised gains or losses cannot be reversed;
¾ the fair value at the date of reclassification becomes the new cost or amortised cost of the financial asset; and
¾ a new effective interest rate will be determined for financial assets measured at amortised cost.
• permit reclassification of a debt instrument that would have met the definition of loans and receivable (if it had not
been designated as an available-for-sale investment) from the available-for-sale category to the loans and
receivables category if the entity has the intention and ability to hold the financial asset for the foreseeable future or
until maturity;
• after the reclassification of financial assets out of the available-for-sale category, the amounts previously recognised
directly in equity will be reclassified to profit or loss through the effective interest rate;
• subsequent to the reclassification of a financial asset, any increases in estimates of future cash receipts as a result
of increased recoverability should be recognised as an adjustment to the effective interest rate of the financial asset
from the date of change in estimate rather than as an adjustment to the carrying amount of the financial asset at the
date of change in estimate;
• effective dates and transition requirements:
¾ for reclassifications made before 1 November 2008, an entity can reclassify a financial asset (which must be
identified and documented before 1 November) with effect from 1 July 2008 (but not before), or any date
thereafter until 31 October 2008; and
¾ any reclassification made on or after 1 November 2008 (irrespective of when the accounting period started) is
effective from the date of reclassification i.e. reclassifications are made on a real-time basis.
• additional disclosure requirements are introduced in HKFRS 7 to illustrate the financial impact of the
reclassifications.
8
The amendments are a response to calls from constituents to create a 'level playing field' with US GAAP which allows
the reclassification of certain financial assets. The IASB has published the amendments to IAS 39 on 13 October 2008
which permits the reclassification of certain held for trading financial assets in limited circumstances. Most importantly, it
allows the reclassification of an instrument (not meeting the definition of loans and receivables) out of the FVTPL
category if the financial asset is no longer held for trading purpose in 'rare' circumstances. In its press release, the IASB
acknowledged that market conditions in the third quarter of 2008 are a possible example of a 'rare' circumstance. The
HKICPA adopted the same amendments to HKAS 39 and HKFRS 7 on 15 October 2008.
1.1.2 HK (IFRIC) - Int 11 HKFRS 2 - Group and Treasury Share Transactions

(effective for annual periods beginning on or after 1 March 2007)
• when an entity receives goods or services as consideration for rights to its own equity instruments, the transaction
should be accounted for as equity-settled. This is regardless of whether:
¾ the entity chooses or is required to purchase equity instruments to satisfy its obligation;
¾ the entity or its shareholder(s) grants the right; or
¾ the transaction is settled by the entity or by its shareholder(s).
• where a parent grants rights to its equity instruments to employees of its subsidiary, assuming the transaction is
accounted for as an equity-settled share-based payment transaction in the consolidated financial statements, the
subsidiary should measure the goods or services received using the requirements for equity-settled transactions in
HKFRS 2, and should recognise a corresponding increase in equity as a contribution from the parent;
• where a subsidiary grants rights to equity instruments of its parent to its employees:
¾ the subsidiary:
(a) has incurred a liability to transfer cash or other assets of the entity to its employees (being a liability to
transfer equity instruments of its parent); and
(b) accounts for the transaction as a cash-settled share-based payment transaction.
¾ in the parent's consolidated financial statements, the transaction is accounted for as equity-settled share-based
payment.
The interpretation clarifies the application of HKFRS 2 Share-based Payment to certain share-based payment
arrangements involving the entity’s own equity instruments and to arrangements involving equity instruments of the
entity’s parent. Although this interpretation focuses on transactions with employees, it also applies to similar share-
based payment transactions with suppliers of goods or services other than employees. The interpretation is expected
to affect the separate financial statements of the parent and its subsidiary if such arrangements were not accounted
for in accordance with the requirements of this interpretation set out above.
1.1.3 HK (IFRIC) - Int 12 Service Concession Arrangements

(effective for annual periods beginning on or after 1 January 2008)
• addresses the accounting by private sector operators involved in the provision of public sector infrastructure assets
and services, such as toll roads, tunnels, bridges, etc.;
• does not address the accounting for the government (grantor) side of such arrangements;
• for arrangements falling within its scope (essentially those where the infrastructure assets are not controlled by the
operator), the infrastructure assets are not recognised as property, plant and equipment of the operator. Depending
on the terms of the arrangement, the operator will recognise:
¾ a financial asset (where the operator has an unconditional right to receive a specified amount of cash or other
financial asset over the life of the arrangement); or
¾ an intangible asset (where the operator’s future cash flows are not fixed – e.g. where they will vary according to
usage of the infrastructure asset); or
¾ both a financial asset and an intangible asset where the operator’s return is provided partially by a financial
asset and partially by an intangible asset.
9
This interpretation gives guidance on the accounting by operators for public-to-private service concession
arrangements and sets out the general principles on recognising and measuring the obligations and related rights in
service concession arrangements. Requirements for disclosing information about service concession arrangements
are continued to be governed by HK(SIC) - Int 29 Service Concession Arrangements: Disclosures.
1.1.4 HK (IFRIC) - Int 14 HKAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction
• HK (IFRIC) - Int 14 addresses three issues:
¾ when refunds or reductions in future contributions should be regarded as ‘available’ in the context of paragraph
58 of HKAS 19 Employee Benefits;
¾ how a minimum funding requirement might affect the availability of reductions in future contributions; and
¾ when a minimum funding requirement might give rise to a liability.
• economic benefit in the form of a refund or reduction in future contributions is ‘available’ if the entity has an
unconditional right to realise the benefit at some point during the life of the plan or when the plan is settled, even if
the benefit is not realisable immediately at the balance sheet date;
• should a minimum funding requirement exist, HK (IFRIC) - Int 14 distinguishes between contributions that are
required to cover:
(a) an existing shortfall for past service on the minimum funding basis; and
(b) the future accrual of benefits.
• Under (a), the minimum contribution requirement relates to services already received by an entity. To the extent
that the contributions payable will not be available for a refund or reduction in future contributions, an entity
recognises a liability when the obligation to provide such contributions arises. The liability recognised will either
reduce the defined benefit asset or increase the defined benefit liability so that no gain or loss is expected to result
from applying paragraph 58 of HKAS 19 when the contributions are paid.
• Under (b), an entity should determine the economic benefit available as a reduction in future contributions as the
present value of the estimated future service cost in each year and the estimated minimum funding contributions
required in respect of the future accrual of benefits in that year.
This interpretation applies to all post-employment defined benefits and other long-term employee defined benefits.
1.2 New and revised standards, amendments and interpretations that are issued but not yet effective for
the financial year ended 31 December 2008
1.2.1 HKFRS 8 Operating Segments

• requires an entity to report financial and descriptive information about its reportable segments, which are operating
segments or aggregations of operating segments that meet specified criteria;
• operating segments are components of an entity about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing
performance;
• if under HKAS 14 Segment Reporting an entity identified its primary segments on the basis of the reports provided
to the person whom HKFRS 8 regards as the chief operating decision maker, those segments might become the
operating segments for the purposes of HKFRS 8;
• does not define segment revenue, segment expense, segment result, segment assets and segment liabilities;
• does not require segment information to be prepared in conformity with the accounting policies adopted for the
entity’s financial statements;
• entities have more discretion in determining what is included in segment profit or loss under HKFRS 8, limited only
by their internal reporting practices;
10
• requires additional entity-wide disclosures even when an entity has only one reportable segment. These include
information about each product and service or groups of products and services;
• requires analyses of revenues and certain non-current assets by geographical area – with an expanded requirement
to disclose revenues/assets by individual foreign country (if material), irrespective of the identification of operating
segments; and
• requires to disclose information about transactions with major customers. If revenues from transactions with a
single external customer amount to 10 per cent or more of the entity’s revenues, the total amount of revenue from
each such customer and the segment or segments in which those revenues are reported must be disclosed.
Upon adoption of HKFRS 8, the identification of an entity’s operating segments will be based on the "management
approach". Generally the information to be reported would be what management uses internally for evaluating
segment performance and deciding how to allocate resources to operating segment. Such information may be
different from what is used to prepare the income statement and balance sheet.
1.2.2 Improvements to HKFRSs (2008)

(effective for annual periods beginning on or after 1 January 2009 except for the amendment to HKFRS
5 which is effective for annual periods beginning on or after 1 July 2009)
The improvements to HKFRSs include 35 amendments and can be split into two parts:
• Part I – amendments that result in accounting changes for presentation, recognition or measurement purposes; and
• Part II – amendments that are terminology or editorial changes only, that have no or minimal effect on accounting.
A summary of the key changes that will result in accounting changes for presentation, recognition or measurement
purposes are set out below (Part I):
Standard Subject of amendment Detail
HKFRS 5 Non-current Assets Plan to sell the controlling interest in Clarifies that assets and liabilities of a subsidiary
Held for Sale and a subsidiary should be classified as held for sale if the parent is
Discontinued Operations committed to a plan involving loss of control of the
subsidiary, regardless of whether the entity will
retain a non-controlling interest after the sale.
HKAS 1 Presentation of Current/non-current classification of Clarifies that financial instruments classified as held
Financial Statements derivatives for trading in accordance with HKAS 39 Financial
Instruments: Recognition and Measurement are not
always required to be presented as current
assets/liabilities.
HKAS 16 Property, Plant and Recoverable amount Replaces the term 'net selling price' with 'fair value
Equipment less cost to sell' in the definition of recoverable
amount, for consistency with the wording used in
HKFRS 5 Non-current Assets Held for Sale and
Discontinued Operations and HKAS 36 Impairment
of Assets.
HKAS 16 Property, Plant and Sale of assets held for rental Entities that routinely sell items of property, plant
Equipment / HKAS 7 Cash and equipment that they have previously held for
Flow Statements rental to others should transfer such assets to
inventories at their carrying amount when they
cease to be rented and are held for sale. The
proceeds from the sale of such assets should be
recognised as revenue in accordance with HKAS 18
Revenue.
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HKAS 19 Employee Benefits Curtailments and negative past Clarifies that:

service
• when a plan amendment reduces benefits, the
effect of the reduction for future service is a
curtailment and the effect of any reduction for
past service is a negative past service cost;
• negative past service cost arises when a change
in the benefits attributable to past service results
in a reduction in the present value of the defined
benefit obligation; and
• a curtailment may arise from a reduction in the
extent to which future salary increases are linked
to the benefits payable for past service.
HKAS 19 Employee Benefits Plan administration costs Amends the definition of 'return on plan assets' to
require the deduction of plan administration costs
only to the extent that such costs have not been
reflected in the actuarial assumptions used to
measure the defined benefit obligation.
HKAS 19 Employee Benefits Guidance on contingent liabilities Removes the reference to 'recognition' in relation to
contingent liabilities as it is inconsistent with HKAS
37 Provisions, Contingent Liabilities and Contingent
Assets, which states that an entity should not
recognise a contingent liability.
HKAS 19 Employee Benefits Replacement of term 'fall due' Amends the definitions of 'short-term employee
benefits' and 'other long-term employee benefits' to
refer to when the benefits are 'due to be settled',
rather than when they 'fall due'.
HKAS 20 Accounting For Government loans with a below- Amends the standard to require the benefit of such
Government Grants and market rate of interest loans be accounted for as a government grant –
Disclosure of Government measured as the difference between the initial
Assistance carrying amount of the loan determined in
accordance with HKAS 39 Financial Instruments:
Recognition and Measurement and the proceeds
received.
HKAS 23 Borrowing Costs Components of borrowing costs Provides description of specific components to
replace the reference to the guidance in HKAS 39
Financial Instruments: Recognition and
Measurement on effective interest rate.
HKAS 27 Consolidated and Measurement in separate financial Amends the standard to require investments in
Separate Financial statements of investments in subsidiaries, jointly controlled entities and
Statements subsidiaries, jointly controlled entities associates accounted for in accordance with HKAS
and associates held for sale 39 Financial Instruments: Recognition and
Measurement in the parent’s separate financial
statements should continue to be measured in
accordance with HKAS 39 when classified as held
for sale (or included in a disposal group classified
as held for sale).
HKAS 28 Investments in Required disclosures when Clarifies that disclosures are required for
Associates / HKAS 32 investments in associates are investments in associates accounted for at fair
Financial Instruments: accounted for at fair value through value in accordance with HKAS 39 Financial
Presentation / profit or loss Instruments: Recognition and Measurement (i.e.
HKFRS 7 Financial only certain disclosures of HKAS 28 are required in
Instruments: Disclosure addition to those required by HKFRS 7).
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HKAS 28 Investments in Impairment of investments in Clarifies that an investment in an associate is

Associates associates treated as a single asset for impairment testing.
Therefore, an impairment loss recorded by an
investor after applying the equity method is not
allocated against any goodwill included in the equity
accounted investment balance. Such an impairment
loss should be reversed in a subsequent period to
the extent that the recoverable amount of the
associate increases.
HKAS 29 Financial Reporting Description of historical cost financial Amends the standard to reflect the fact that in
in Hyperinflationary statements historical cost financial statements, some assets
Economies and liabilities may be measured at current values
(e.g. property, plant and equipment measured at fair
value).
HKAS 31 Interests in Joint Required disclosures when interests Clarifies that disclosures are required for interests in
Ventures / HKAS 32 in jointly controlled entities are jointly controlled entities accounted for at fair value
Financial Instruments: accounted for at fair value through in accordance with HKAS 39 Financial Instruments:
Presentation / profit or loss Recognition and Measurement (i.e. only certain of
HKFRS 7 Financial HKAS 31’s disclosures are required in addition to
Instruments: Disclosure those required by HKFRS 7).
HKAS 36 Impairment of Disclosure of estimates used to Amends the standard to extend the disclosures
Assets determine recoverable amount of required when discounted cash flows are used to
cash-generating units containing estimate fair value less costs to sell, to include:
goodwill or intangible assets with
indefinite useful lives • the period over which management has projected
cash flows;
• the growth rate used to extrapolate cash flow
projections; and
• the discount rate(s) applied to the cash flow
projections.
HKAS 38 Intangible Assets Advertising and promotional activities Clarifies the circumstances in which an entity can
recognise a prepayment asset for advertising or
promotional expenditure. Recognition of an asset
would be permitted up to the point at which the
entity has the right to access the goods purchased
or up to the point of receipt of services.
Mail order catalogues specifically identified as a
form of advertising and promotional activities.
HKAS 38 Intangible Assets Unit of production method of Removes the wording perceived as prohibiting the
amortisation use of the unit of production method if it results in a
lower amount of accumulated amortisation than
under the straight-line method. Entities may use the
unit of production method when the resulting
amortisation charge reflects the expected pattern of
consumption of the expected future economic
benefits embodied in an intangible asset.
HKAS 39 Financial Reclassifying instruments into and HKAS 39 prohibits the classification of financial
Instruments: Recognition and out of the classification of at fair instruments into or out of the fair value through
Measurement value through profit or loss profit or loss (FVTPL) category after initial
recognition. Amendments set out a number of
changes in circumstances that are not considered
to be reclassifications for this purpose.
HKAS 39 Financial Designating and documenting Removes the references to the designation of
Instruments: Recognition and hedges at the segment level hedging instruments at the segment level.
Measurement
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HKAS 39 Financial Applicable effective interest rate on Clarifies that the revised effective interest rate
Instruments: Recognition and cessation of fair value hedge calculated on cessation of fair value hedge
Measurement accounting accounting in accordance with paragraph 92 of
HKAS 39 should be used for the re-measurement of
the hedged item when paragraph AG8 of HKAS 39
is applicable.
HKAS 40 Investment Property under construction or Amends the standard to bring property under
Property / HKAS 16 Property, development for future use as construction or development for future use as an
Plant and Equipment investment property investment property within the scope of HKAS 40.
Such property previously fell within the scope of
HKAS 16.
HKAS 41 Agriculture Discount rate for fair value Previously, HKAS 41 required that the discount rate
calculations used to determine fair value should be a pre-tax
rate. The amendment requires a current market-
determined rate to be used, but permits this to be a
pre-tax or post-tax rate according to the valuation
methodology used to determine fair value.
HKAS 41 Agriculture Additional biological transformation Removes the prohibition on taking 'additional
biological transformation' into consideration when
calculating the fair value of biological assets using
discounted cash flows. In addition, the definition of
'agricultural activity' has been amended to include
the harvest of biological assets.
Of all the above changes, the amendments to HKAS 40/HKAS 16 are expected to be more significant because they
represent a change in the accounting treatment of properties under construction or development for future use as
investment properties. Under the requirement of the existing HKAS 16 and HKAS 40, a property under construction or
development for future use as an investment property is accounted for as property, plant and equipment. The
amendments require a property under construction or development for future use an as investment property to be
accounted for in accordance with HKAS 40 during the construction period. For entities which measure investment
properties using the fair value model, the property under construction or development for future use as an investment
property is required to be measured at fair value unless the fair value of the property under construction is not reliably
determinable.
1.2.3. Amendments to HKFRS 1 First-time Adoption of HKFRSs and HKAS 27 Consolidated and Separate
Financial Statements – Cost of an Investment in Subsidiary, Jointly Controlled Entity or Associate
(effective for annual period beginning on or after 1 January 2009)
• a first-time adopter that has chosen to account for investments in a subsidiary, a jointly controlled entity or an
associate in its separate financial statements at cost may use the "deemed cost" approach. The deemed cost can
be determined as either:
¾ fair value (determined in accordance with HKAS 39 Financial Instruments: Recognition and Measurement) at
the entity’s date of transition to HKFRSs in its separate financial statements; or
¾ the previous GAAP carrying amount of the investment at that date.
• in the separate financial statements of a parent entity/investor,
¾ dividends received from subsidiaries, jointly controlled entities and associates should be recognised in profit or
loss when the entity's right to receive the dividend is established (i.e. the requirement to distinguish pre- and
post- acquisition dividends was removed); and
¾ impairment test is required to be performed for an investment in a subsidiary, jointly controlled entity and
associate if it received dividends from the investment when:
– the carrying amount of the investment in the separate financial statements exceeds the carrying amount in
the consolidated financial statements of the investee’s net assets; or
– the dividend exceeds the total comprehensive income of the subsidiary, jointly controlled entity or
associate in the period in which the dividend is declared.
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The amendments simplify the accounting of investments in subsidiaries, jointly controlled entities and associates in the
separate financial statements of the parent entity/investor. A first time adopter may adopt the fair value or the previous
GAAP carrying amount of its investment in a subsidiary, jointly controlled entity or associate as the "deemed cost" in its
first set of separate financial statements prepared in accordance with HKFRSs.
1.2.4 Amendment to HKFRS 2 Share-based Payment – Vesting Conditions and Cancellations

• clarifies that vesting conditions are those conditions that determine whether the entity receives the services that
result in the counterparty’s entitlement;
• restricts the definition of vesting conditions to include only service conditions and performance conditions;
• amends the definition of performance conditions to require the completion of a service period in addition to specified
performance targets;
• clarifies that all features of a share-based payment arrangement other than service conditions and performance
conditions will be considered as non-vesting conditions;
• specifies that when estimating the fair value of equity instruments granted, an entity shall take into account:
¾ all non-vesting conditions; and
¾ vesting conditions that are market conditions (for example, attaining a specified share price of the entity).
• clarifies that a failure by the entity or the counterparty to meet a non-vesting condition will be treated as a
cancellation if the entity or the counterparty can choose to meet that non-vesting condition or not.
The amendment clarifies the definition of vesting conditions and the accounting treatment of cancellations resulted from
a failure by the entity or the counterparty meeting the non-vesting conditions. Additional guidance is provided with
examples in the implementation guidance section of the amendment.
1.2.5 Amendments to HKAS 32 Financial Instruments: Presentation and HKAS 1 Presentation of Financial
Statements – Puttable Financial Instruments and Obligations arising on Liquidation
• Under the current requirements of HKAS 32, if an issuer can be required to pay cash or another financial asset in
return for redeeming or repurchasing a financial instrument, the instrument is classified as a financial liability.
• Under the amendments, puttable financial instruments will be presented as equity if all of the following criteria are
met:
(a) the holder is entitled to a pro-rata share of the entity’s net assets on liquidation;
(b) the instrument is in the class of instruments that is the most subordinate and all instruments in that class have
identical features;
(c) the instrument has no other characteristics that would meet the definition of a financial liability;
(d) the total expected cash flows attributable to the instrument over its life are based substantially on the profit or
loss, the change in the recognised net assets or the change in the fair value of the recognised and
unrecognised net assets of the entity (excluding any effects of the instrument itself); and
(e) the entity must have no other instrument that has terms equivalent to (d) above and that has the effect of
substantially restricting or fixing the residual return to the holders of the puttable financial instruments.
• The criteria for equity classification for instruments, or components of instruments, that impose on the entity an
obligation to deliver to another party a pro-rata share of the net assets of the entity only on liquidation are the same
as above except (c) and (d) do not apply.
• Instruments of this nature issued by a subsidiary that are held by non-controlling parties and presented as equity in
the subsidiary’s financial statements will not be presented as equity in the consolidated financial statements as
these instruments will not be the most subordinated instrument of the group.
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The amendments set out extensive criteria that need to be met in order to present certain instruments that impose an
obligation on an entity to deliver to another party a pro-rata share of its net assets only on liquidation as equity. The
objective of these amendments is to provide a "short term, limited scope amendment" to specific cases and shall not be
cited by analogy.
1.2.6 Amendment to HKAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items
(effective for annual period beginning on or after 1 July 2009)
The amendment clarifies that:
• inflation may only be hedged in the instance where changes in inflation are a contractually-specified portion of cash
flows of a recognised financial instrument (e.g. an entity acquires or issues inflation-linked debt);
• an entity is not permitted to designate an inflation component of issued or acquired fixed-rate debt in a fair value
hedge because such a component is not separately identifiable and reliably measurable;
• a risk-free or benchmark interest rate portion of the fair value of a fixed-rate financial instrument will normally be
separately identifiable and reliably measurable and therefore may be hedged; and
• an entity may designate an option as a hedge of changes in the cash flows or fair value of a hedged item above or
below a specified price or other variable (a one-sided risk), however, an option designated in its entirety cannot be
perfectly effective because the intrinsic value, not the time value, of an option only reflects a one-sided risk.
The amendment provides clarification on the instances that inflation can be a hedged risk. In addition, it clarifies that
designating the intrinsic value of an option to hedge a one-sided risk should provide a higher hedging effectiveness
relative to designating the option in its entirety (which includes the time value of the option).
1.2.7 HKFRS 3 (Revised) Business Combinations

• under the revised standard, acquisition-related costs (e.g. finder’s fees, advisory, legal, accounting, valuation, and
other professional or consulting fees; and general administrative costs, including the costs of maintaining an internal
acquisitions department) are to be recognised as period expenses in accordance with the appropriate standards;
• acquisition accounting applies only at the point where control is achieved. The implications are:
¾ pre-existing equity interest in the entity acquired may be accounted for as a financial instrument in accordance
with HKAS 39 Financial Instruments: Recognition and Measurement, as an associate or a joint venture in
accordance with HKAS 28 Investments in Associates or HKAS 31 Interests in Joint Ventures; and
¾ for a ‘business combination achieved in stages’, previously-held equity interest in the acquiree should be re-
measured at acquisition-date fair value and any resulting gain or loss recognised in profit or loss.
• goodwill should be recognised at the acquisition date, being measured as the difference between:
(a) the aggregate of:
– the acquisition-date fair value of the consideration transferred;
– the amount of any non-controlling interest (NCI) in the entity acquired; and
– in a business combination achieved in stages, the acquisition date fair value of the acquirer’s previously-
held equity interest in the entity acquired; and
(b) the net amount of identifiable assets acquired and the liabilities assumed measured in accordance with this
standard at the date of acquisition;
• an option available to measure any NCI either at fair value or at the NCI's proportionate share of the net identifiable
assets of the entity acquired;
• contingent consideration should be measured at fair value at the acquisition date. Change to the contingent
consideration is allowed only when additional information about facts and circumstances that existed at the
acquisition date became available during the measurement period which should not exceed one year from the
acquisition date. All other changes are recognised in profit or loss;
• where the acquirer and acquiree were parties to a pre-existing relationship (e.g. the acquirer had granted the
acquiree a right to use its intellectual property), the standard provides specific guidance on how to account for those
pre-existing relationships under different circumstances.
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There are significant changes in the revised standard. The revised HKFRS 3 focuses on changes in control as a
significant economic event. Under a step acquisition, obtaining control is the event which triggers remeasurement of
goodwill. In addition, the acquirer’s previously-held equity interest in the acquiree should also be remeasured.
The revised standard puts a greater emphasis on the use of fair value. If an entity chooses to early adopt this standard,
it must adopt the revised HKAS 27 Consolidated and Separate Financial Statements concurrently.
1.2.8 HKAS 1 (Revised) Presentation of Financial Statements

• majority of the changes made are not substantive;
• textual changes including changes to the titles of the components of a complete set of financial statements (e.g. a
‘balance sheet’ will in future be referred to as a ‘statement of financial position’);
• requires to include a statement of financial position as at the beginning of the earliest comparative period whenever
an entity retrospectively applies an accounting policy, or makes a retrospective restatement of items in its financial
statements, or when it reclassifies items in its financial statements;
• all items of income and expense (including those accounted for directly in equity) must in future be presented either:
¾ in a single statement (a ‘statement of comprehensive income’); or
¾ in two statements (a separate ‘income statement’ and ‘statement of comprehensive income’)
• no longer permits to present items of ‘other comprehensive income’ (e.g. gains and losses on revaluation of
property, plant and equipment) separately in the statement of changes in equity. Such non-owner movements must
be presented in a statement of comprehensive income and the total carried to the statement of changes in equity;
• no longer permits to present transactions with owners in their capacity as owners in the notes – the statement of
changes in equity must be presented as a separate financial statement; and
• new detailed requirements regarding the presentation of items of other comprehensive income.
The main change relates to the presentation of ‘non-owner changes’ separately from the statement of changes in
equity. Others are mainly textual changes only.
1.2.9 HKAS 23 (Revised) Borrowing Costs

• eliminates the option available under the previous version of the standard to recognise all borrowing costs
immediately as an expense;
• to the extent that borrowing costs relate to the acquisition, construction or production of a qualifying asset, the
revised standard requires that they be capitalised as part of the cost of that asset;
• all other borrowing costs should be expensed as incurred; and
• generally to be applied prospectively to borrowing costs relating to qualifying assets for which the commencement
date for capitalisation is on or after the effective date of the revised standard. Therefore, if an entity has previously
followed an accounting policy of immediately recognising all borrowing costs as an expense:
¾ it is not required to retrospectively restate its financial statements for borrowing costs incurred on qualifying
assets before the effective date of the standard;
¾ nor is it required to apply the capitalisation policy to borrowing costs incurred subsequent to the effective date
on projects that had commenced (i.e. that had met HKAS 23’s criteria for commencement of capitalisation)
before the effective date.
This standard eliminates the option to recognise all borrowing costs immediately as an expense which will only impact
entities which are currently applying such accounting policy. Reporting entities have the choice to either apply this
standard prospectively or retrospectively from a specified designated date.
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1.2.10 HKAS 27 (Revised) Consolidated and Separate Financial Statements

• for acquisitions and disposals that do not result in a change of control,
¾ they are accounted for within shareholders’ equity as transactions with owners acting in their capacity as
owners;
¾ no gain or loss is recognised;
¾ goodwill is not remeasured; and
¾ any difference between the change in the NCI and the fair value of the consideration paid or received is
recognised directly in equity and attributed to the owners of the parent.
• for disposals that result in a loss of control,
¾ the parent derecognises all assets, liabilities and NCI at their carrying amount;
¾ any retained interest in the former subsidiary is recognised at its fair value at the date control is lost; and
¾ any gain or loss is recognised in profit or loss.
• an entity is required to attribute the share of total comprehensive income to the NCI even if this results in the NCI
having a deficit balance.
The accounting for acquisition and disposal transactions that do not result in a change of control was not covered under
existing HKFRSs. The revision of HKAS 27 requires such transactions to be accounted for as transactions between
equity holders. Gain or loss will only be recognised for disposals that result in a loss of control in the subsidiary.
1.2.11 HK (IFRIC) – Int 13 Customer Loyalty Programmes

(effective for annual periods beginning on or after 1 July 2008)
• addresses the accounting by entities that provide their customers with incentives to buy goods or services by
providing awards (called ‘award credits’ in the Interpretation) as part of a sales transaction. Common examples are
airline and hotel loyalty schemes and credit card reward programmes;
• applies to customer loyalty award credits that:
¾ entities grant to their customers as part of a sales transaction under HKAS 18 Revenue (a sale of goods,
rendering of services or use by the customer of entity assets); and
¾ subject to meeting any further qualifying conditions, the customers can redeem for free or discounted goods or
services in the future.
• requires the entity that grants the awards to account for the sales transaction that gives rise to the award credits as
a ‘multiple-element revenue transaction’ and allocate the fair value of the consideration received or receivable
between the award credits granted and the other components of the revenue transaction;
• applies irrespective of whether the entity supplies the awards (the discounted goods or services) or whether a third
party supplies them; and
• prohibits the alternative treatment of recognising the full consideration received as revenue and a separate liability
for the cost of supplying the awards.
This interpretation addresses the accounting by the entity that grants award credits to its customers, either by
supplying goods or services itself and/or by granting rights to claim goods or services from a third party (for example,
airline mileage schemes).
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1.2.12 HK (IFRIC) – Int 15 Agreements for the Construction of Real Estate

• supersedes HK Interpretation 3 Revenue – Pre-completion Contracts for the Sale of Development Properties issued
by the HKICPA in 2005;
• clarifies that an agreement for the construction of real estate meets the definition of a construction contract (and
should therefore be accounted for in accordance with HKAS 11 Construction Contracts) if the buyer is able to
specify:
¾ the major structural elements of the design of the real estate before construction begins; and/or
¾ major structural changes once construction is in progress (whether it exercises that ability or not); and
• other agreements relating to real estate which the buyers have only limited ability to influence the design of the real
estate or to specify only minor variations to the basic design are sale of goods agreements to be accounted for in
accordance with HKAS 18 Revenue:
¾ if the recognition criteria set out in paragraph 14 of HKAS 18 are met continuously as construction progresses,
revenue is recognised by reference to the stage of completion using the percentage of completion method;
¾ in other cases, revenue is recognised when all the criteria in paragraph 14 of HKAS 18 are met (for example, at
completion, upon or after delivery).
• requires additional disclosure if an entity considers the revenue recognition criteria under paragraph 14 of HKAS 18
are met continuously and recognises revenue using the percentage of completion method.
Under HK Interpretation 3, Hong Kong property developers are required to account for the real estate sales in
accordance with HKAS 18 as sale of goods. HK(IFRIC) – Int 15 clarifies the timing of revenue recognition in relation to
real estate sales. If an entity transfers to the buyer control and the significant risks and rewards of ownership of the real
estate in its entirety at a single time (e.g. at completion, upon or after delivery), it should recognise revenue only when all
the criteria in paragraph 14 of HKAS 18 are satisfied.
1.2.13 HK (IFRIC) – Int 16 Hedges of a Net Investment in a Foreign Operation

(effective for annual period beginning on or after 1 October 2008)
The interpretation states that:
• the eligible risk for hedges of a net investment in a foreign operation is restricted to the exchange differences arising
between the functional currency of a parent and the functional currency of the foreign operation;
• it is irrelevant whether the net investment is held by the parent entity directly or indirectly;
• any foreign currency risk arising from a net investment in a foreign operation may qualify for hedge accounting only
once in the consolidated financial statements;
• for the purpose of testing hedge effectiveness, the change in the fair value of the hedging instrument is computed
by reference to the functional currency of the parent entity against whose functional currency the hedged risk is
measured; and
• the consensus of this interpretation should not be applied by analogy to other types of hedge accounting.
The interpretation provides guidance and clarifications on net investment hedging of foreign operations.
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1.2.14 HK(IFRIC) – Int 17 Distribution of Non-cash Assets to Owners

The interpretation requires:
• a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the
discretion of the entity;
• an entity should measure the dividend payable at the fair value of the net assets to be distributed;
• an entity should recognise the difference between the dividend paid and the carrying amount of the net assets
distributed in profit or loss; and
• an entity to provide additional disclosures if the net assets being held for distribution to owners meet the definition of
a discontinued operation in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued
Operations.
The interpretation requires the distribution of non-cash assets to shareholders to be measured at fair value.
2. Disclosing the fair value of financial instruments when markets become inactive
On 31 October 2008, the IASB published guidance on the application of fair value measurement when markets become
inactive – Measuring and Disclosing the Fair Value of Financial Instruments in Markets that are no longer Active (the
'Report'). The Report summarises the discussion of the expert advisory panel (the 'Expert Panel') established by the
IASB in May 2008. The Report is separated into two parts. Part 1 describes the practices used for measuring financial
instruments when markets are no longer active. Part 2 describes the practices used by entities when disclosing fair
values in such situations.
The Report is only a guidance (not new requirements) issued by IASB to assist entities which are reported under IFRS.
Such guidance is particularly useful in meeting the requirements of IAS 39 and IFRS 7 in the current financial market
conditions. The Report is equally relevant to entities reporting HKFRS.
Although many of the issues discussed in the Report are of more relevance to the financial reporting of banks and
financial institutions, it should also be considered by entities holding significant investments in financial products,
especially complex financial instruments.
2.1 Description of instruments of particular interest to users
The Report states that not all classes of financial instruments need the same level of details for disclosure purpose. An
entity should consider providing enhanced disclosure about financial instruments that are of particular interest to users.
Such instruments are likely to be those instruments on which greater emphasis is placed for the entity's internal
management purpose or those that are the focus of users' questions. In our local and current context, entities might
have entered into complex high risk derivatives and structured products, for example, accumulators, collateralised
products and credit-linked notes. In such cases, these entities should produce fair value disclosure which describes the
financial instruments in greater details so that users of financial statements are able to evaluate the entity's risk exposure
about these instruments.
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The following is an example of a disclosure about instruments of particular interest to users extracted from the Report.
The Royal Bank of Scotland Group plc

Annual Report and Accounts 2007
Extract from 'Fair value - Financial instruments'
RBS Group plc super senior tranche exposures to CDOs
Super senior tranches of asset-backed CDOs - the Group is a participant in the US asset-backed securities market:
buying residential mortgage-backed securities ('RMBS'), including securities backed by US sub-prime mortgages, and
repackaging them into collateralised debt obligations ('CDOs') for sale to investors. The Group retains exposure to
some of the super senior tranches of these CDOs. In the second half of 2007, rising mortgage delinquencies and
expectations of declining house prices in the US led to a deterioration of the estimated fair value of these exposures.
An analysis of the Group’s super senior tranche exposures to these CDOs is shown below:
HIGH GRADE MEZZANINE
Exposure (£m) 6,420 3,040

Exposure after hedges(£m) 3,073 1,790
Weighted average attachment point (1) 29% 46%
% of underlying RMBS sub-prime assets 69% 91%
Of which originated in:
- 2005 and earlier 24% 23%
- 2006 28% 69%
- 2007 48% 8%
Collateral by rating:
- investment grade 98% 31%
- non-investment grade 2% 69%
Net exposure (£m) 2,581 1,253
Effective attachment point post write down 40% 62%
Note (1) Attachment point is the minimum level of losses in a portfolio to which a tranche is exposed, as a percentage
of the total notional size of the portfolio. For example, a 5-10% tranche has an attachment point of 5% and a
detachment point of 10%. When the accumulated loss of the reference pool is no more than 5% of the total initial
notional of the pool, the tranche will not be affected. However, when the loss has exceeded 5%, any further loss will be
deducted from the tranche’s notional principal until the detachment point, 10% is reached.
The Group’s valuation of the super senior asset-backed CDO exposures takes into consideration outputs from a
proprietary model, market data and appropriate valuation adjustments. There is significant subjectivity in the valuation
with very little market activity to provide support for fair value levels at which willing buyers and sellers would transact.
The Group’s proprietary model predicts the expected cash flows of the underlying mortgages using assumptions about
future macroeconomic conditions (including house price appreciation and depreciation) and defaults/delinquencies on
these underlying mortgages derived from publicly available data. The resulting cash flows are discounted using a risk
adjusted rate. Alternative valuations have been produced using reasonably possible alternative assumptions about
macroeconomic conditions including house price appreciation and depreciation, and the effect of regional variations. In
addition, the discount rate applied to the model output has been stressed. The output from using these alternative
assumptions has been compared with inferred pricing from other published data. The Group believes that reasonably
possible alternative assumptions could reduce or increase predicted cumulative losses from the model by up to 20%.
Using these alternative assumptions would reduce the fair value by up to £385 million or increase the fair value by up
to £235 million.
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2.2 Disclosure of valuation techniques and inputs
IFRS/HKFRS 7.27 sets out the disclosure requirements about financial instruments whose fair values are determined by
valuation techniques. If the fair value is determined by valuation techniques, it requires the disclosure of the methods
and the assumptions applied and whether the fair values determined by valuation techniques are based on assumptions
that are, or are not, supported by observable market inputs.
Description of the valuation techniques and inputs are most helpful to users of financial statements if they are specific
rather than generic. For financial instruments that are not quoted in an active market, fair values are determined by
valuation techniques using market-based and/or non-market-based inputs. In view of the current adverse financial
market conditions, disclosures about valuation techniques and inputs become more important, particularly if the financial
instruments which are the subject of valuations are complex and risky instruments such as accumulators, equity-linked
notes and credit-linked notes.
The following is an example for disclosures about valuation techniques and inputs extracted from the Report.
UBS AG
Q2 2008 Financial Reporting
Extract from note 10b – Valuation Techniques and Inputs
Where possible, financial instruments are marked at prices quoted in active markets. In the current market
environment, such price information is typically not available for all instruments linked to the US residential mortgage
market, and UBS applies valuation techniques to measure such instruments. Valuation techniques use "market
observable inputs", where available, derived from similar assets in similar and active markets, from recent transaction
prices for comparable items or from other observable market data. For positions where observable reference data are
not available for some or all parameters, UBS estimates the non-market observable inputs used in its valuation models.
For the period ended 30 June 2008, UBS used valuation models primarily for super senior RMBS [residential mortgage
backed securities] CDO [collateralised debt obligation] tranches referenced to sub-prime RMBSs. The model used to
value some of these positions projects losses on the underlying mortgage pools and applies the implications of these
projected lifetime losses through to the RMBS and then to the CDO structure. The primary inputs to the model are
monthly statistical data on delinquency rates, foreclosure rates and actual losses that describe the current performance
of the underlying mortgage pools. These are received near the end of each month and relate to the preceding month’s
cash flows on the mortgages underlying each RMBS. The other key factor input to the model is an estimate of loss
given default, which is a non-market observable input.
In fourth quarter 2007 and first half 2008, UBS used relevant ABX market indices to calibrate its loss projections to
ensure that the super senior RMBS CDO model is consistent with observed levels of the indices in the market. Despite
the various limitations in the comparability of these indices to UBS’s own positions, it was felt that this was the best
approach in view of the further deterioration in liquidity and resultant lack of observed transactions to which the model
could be calibrated.
The valuation model also considers the impact of variability in projected lifetime loss levels and applies a discount rate
for expected cash flows derived from relevant market index prices to value expected cash flows. The external ratings of
the RMBSs underlying the CDO tranches or the CDO tranches themselves are inputs to the valuation model only to the
extent that they indicate the likely timing of potential "events of default".
The valuation model incorporates the potential timing and impact of such default events based on an analysis of the
contractual rights of various parties to the transaction and the estimated performance of the underlying collateral. There
is no single market standard for valuation models in this area, such models have inherent limitations, and different
assumptions and inputs would generate different results. The super senior RMBS CDO valuation model is used to
value a portion of UBS’s net long exposures to super senior RMBS CDOs and in cases where UBS holds a gross long
position in a super senior RMBS CDO hedged one-to-one with an offsetting short position (since this valuation is
necessary to calculate any related credit valuation adjustments).
In cases where liquidation of the RMBS CDO is deemed imminent, and where it is possible to obtain reliable pricing of
the underlying instruments, the super senior RMBS CDO valuation model is superseded. Instead, valuation in these
cases is based on the estimated aggregate proceeds of the liquidation (using current fair value estimates of the
underlying instruments) less any estimated expenses associated with the liquidation.
22
II. Regulatory Updates

Listing Rules
During 2008, the Stock Exchange of Hong Kong Limited (the 'Stock Exchange') made a number of amendments to the
Rules Governing the Listing of Securities on the GEM (GEM Listing Rules) and the Rules Governing the Listing of
Securities on the SEHK (Main Board Listing Rules) after the completion of the respective consultation period. It has also
published three consultation papers, of which two of them are still under assessment on 31 December 2008.
Consultation Conclusions on the Growth Enterprise Market published in May 2008
• GEM is repositioned as a second board, and as a stepping stone towards the Main Board.
• Listing Rules amendments are introduced to reflect the new role of the market but GEM will largely retain its existing
structure.
• Under the GEM Listing Rules amendments, continuing obligations of GEM listed issuers are brought closer to the
requirements applicable to the Main Board requirements.
• The revised rules became effective on 1 July 2008 and transitional arrangements are available to certain
applications received by the Stock Exchange.
• Key changes are summarised in the following tables:
Key GEM admission arrangements
Requirements Previous Revised
Financial Credentials "Business of substance and Operating cash flow > $20 million in
potential" aggregate for latest two full financial
years
Operating History and 24 months active business Latest two financial years under
Management pursuits (may be reduced to 12 substantially the same management
months)
Market Capitalisation Effectively > $46 million > $100 million

(> $500 million for companies
with 12 months active
business pursuits)
Focused Line of Business Required Not required
Approval By GEM Listing Committee Listing Division
Key changes in GEM to Main Board transfer arrangements
Requirements Previous Revised
Process Two steps: Delisting on GEM One step: New method of listing on the
and new listing on Main Board Main Board, "Transfer of Listing from
GEM"
Cost Standard initial listing fee for Main Board initial listing fee reduced by
Main Board 50% for GEM transfer applicants
Sponsor(s) or Financial Advisor(s) Required Not required
Prospectus Required Prospectus replaced by announcements
23
Consultation Conclusion on Shortening the Deadlines for Half-Year and Annual Reporting by Main Board
Issuers published in July 2008
• The reporting deadlines for half-year results announcements will be reduced from three months to two months and
annual results announcements from four months to three months.
• The new requirements will come into effect for half-year and annual results announcements covering accounting
periods ending on or after 30 June 2010 and 31 December 2010 respectively.
Combined Consultation Conclusion on Proposed Changes to the Listing Rules published in November 2008
• It concluded 15 of the 18 substantive policy issues in the proposals issued in January 2008.
• The remaining three issues relating to public float, general mandates and self-constructed fixed assets remain
under assessment and separate conclusions are expected to be published at a later date.
• The amendments to the Listing Rules became effective on 1 January 2009.
• The amendments:
¾ remove the requirement for a qualified accountant and expanded the Code Provisions of Appendix 14 - Code
on Corporate Governance Practices regarding internal controls to make specific references to the responsibility
of the directors to conduct an annual review of the adequacy of staffing of the financial reporting functions and
the oversight role of the audit committee;
¾ align the requirements for material dilution in a major subsidiary and deemed disposal such that the
requirement for shareholders' consent will be based on a size test threshold of 25% (i.e. the threshold for a
major transaction) and that a written certificate may be accepted in lieu of a physical shareholders' meeting;
and
¾ codify the conditional waiver that exempts listed issuers actively engaged in property development as a
principal business activity from the shareholders' approval requirement under the Listing Rules in certain
scenarios of acquisitions of land or property development projects in Hong Kong from Government or
Government-controlled entities through public auctions or tenders.
Other consultation papers
The following consultation papers are not yet finalised as at 31 December 2008.
• Joint Consultation Paper on Issue of Paper Application Forms with Electronic Prospectuses (April 2008)
¾ The proposal recommends the distribution of paper application forms for public offers by receiving banks to
potential investments without providing a paper prospectus if:
- electronic prospectus is available online; and
- other investor protection requirements are satisfied.
• Consultation Paper on Introduction of a Price Control Mechanism during the Closing Auction Session in the
Securities Market (November 2008)
¾ This paper discusses the possibility of introducing a price control mechanism for order input during the Closing
Auction Session (CAS) in the Hong Kong securities market and the possibility of suspending the CAS.
Other regulatory developments
• During 2008, the Securities and Futures Commission has:
¾ revised the Takeover Code to clarify that the voting threshold and other requirements that are applicable to a
privatisation will also apply to a transaction involving a disposal of assets and/or operations by a listed company
coupled with the possible delisting of that company; and
¾ revised the Guidelines for the Exemption of Listed Corporations from Part XV of the Securities and Futures
Ordinance (SFO). The purpose is to exempt open-ended collective investment schemes (for example, REITs)
listed locally from the disclosure of interest requirements under Part XV of the SFO.
• In June 2008, the Financial Services and Treasury Bureau issued the Third Public Consultation on Companies
Ordinance Rewrite which deals with issues relating to share capital, capital maintenance and statutory
amalgamation procedures.
24
The illustrative financial statements of Hong Kong GAAP Limited are intended to illustrate the presentation
and disclosure requirements of Hong Kong Financial Reporting Standards (HKFRSs), the Hong Kong
Companies Ordinance and the Listing Rules. They also contain additional disclosures that are considered to
be best practice, particularly where such disclosures are included in illustrative examples provided with a
specific standard.
Hong Kong GAAP Limited is assumed to be a Bermuda incorporated company listed on the Main Board of
The Stock Exchange of Hong Kong Limited. For those entities listed on the Growth Enterprise Market,
specific disclosure requirements are set out in the GEM Rules. These are largely consistent with the
requirements of the Listing Rules and, for readers’ convenience, cross-references to the GEM Rules have
also been included in the illustrative financial statements.
Hong Kong GAAP Limited is assumed to have presented financial statements in accordance with HKFRSs
for a number of years. Therefore, it is not a first-time adopter of HKFRSs. Suggested disclosures are cross-
referenced to the relevant standards and interpretations.
The illustrative financial statements do not include separate financial statements for the parent, which may
be required by local laws or regulations, or may be prepared voluntarily. Where an entity presents separate
financial statements that comply with HKFRSs, the requirements of HKAS 27 Consolidated and Separate
Financial Statements will apply. A separate income statement, balance sheet, statement of changes in
equity and cash flow statement for the parent will generally be required, together with supporting notes.
Note that in these illustrative financial statements, we have frequently included line items for which a nil
amount is shown, so as to illustrate items that, although not applicable to Hong Kong GAAP Limited, are
commonly encountered in practice. This does not mean that we have illustrated all possible disclosures.
Nor should it be taken to mean that, in practice, entities are required to display line items for such “nil”
amounts.
For the purposes of presenting the income statement, statement of changes in equity and cash flow
statement, the various alternatives allowed under HKFRSs for those statements have been illustrated.
Preparers should select the alternatives most appropriate to their circumstances.
A presentation and disclosure checklist that is applicable to 2008 financial statements is not included in this
publication. However, the checklist is available for download on our IAS Plus website (www.iasplus.com).
25
Contents
Page
1. Index to the notes to the consolidated financial statements 27
2. Corporate information 29
3. Directors’ business review 30
4. Corporate governance report 31
5. Profiles of directors and senior management 32
6. Directors’ report 33
7. Independent auditor’s report 42
8. Consolidated income statement
Alt 1 - Expenses analysed by function 43
Alt 2 - Expenses analysed by nature 44
9. Consolidated balance sheet 45
10. Changes in equity
Alt 1 - Consolidated statement of changes in equity 47
Alt 2 - Consolidated statement of recognised income and expense 49
11. Consolidated cash flow statement
Alt 1 - Indirect method of reporting cash flows from operating activities 50
Alt 2 - Direct method of reporting cash flows from operating activities 52
12. Notes to the consolidated financial statements 54
13. Financial summary 152
14. Particulars of major investment properties 154
26
Index to the notes to the consolidated financial statements Page
1. General 54
2. Application of new and revised Hong Kong Financial Reporting Standards 54
3. Significant accounting policies 56
4. Critical accounting judgments and key sources of estimation uncertainty 73
5. Revenue 75
6. Business and geographical segments 75
7. Investment and other income 79
8. Other gains and losses 80
9. Finance costs 81
10. Income tax expense 82
11. Discontinued operations 84
12. Non-current assets held for sale 85
13. Profit for the year 86
14. Directors’ emoluments 88
15. Employees’ emoluments 89
16. Dividends 89
17. Earnings per share 90
18. Property, plant and equipment 92
19. Prepaid lease payments 94
20. Investment properties 95
21. Goodwill 96
22. Impairment testing on goodwill 97
23. Other intangible assets 99
24. Investments in associates 101
25. Joint ventures 103
26 Held-to-maturity investments 104
27. Available-for-sale investments 105
28. Finance lease receivables 106
29. Deferred taxation 107
30. Other financial assets/liabilities 108
31. Inventories 111
32. Loan receivables 111
33. Amounts due from directors 111
34. Trade and other receivables 112
35. Amounts due from (to) customers for contract work 114
36. Held-for-trading investments (other than derivatives) 114
37. Bank balances/pledged bank deposits/bank overdrafts 115
38. Trade and other payables 115
39. Borrowings 116
40. Obligations under finance leases 117
41. Provisions 118
27
42. Share capital 119

43. Share premium and reserves 120
44. Convertible loan notes 122
45. Capital risk management 123
46. Financial instruments 124
47. Acquisition of subsidiaries 134
48. Disposal of a subsidiary 136
49. Cash and cash equivalents 137
50. Non-cash transactions 137
51. Contingent liabilities and contingent assets 138
52. Operating leases 139
53. Commitments 140
54. Pledge of assets 140
55. Share-based payment transactions 141
56. Retirement benefit plans 145
57. Related party transactions 149
58. Particulars of principal subsidiaries of the Company 150
59. Balance sheet information of the Company 151
60. Post balance sheet events 151
28
Source Hong Kong GAAP Limited
Corporate information
Board of directors Registered office
Gary D.K. Wong, Chairman 35th Floor, The Pacific Tower

Daniel D.D. Lee 33 Front Street
Derek S.Y. Wong Hamilton HM12
Tiara Cheung Bermuda
Florence K.Y. Tang
John Banks
Company secretary Registrars
William Y.S. Lee Hong Kong Registrars Limited

Central
Hong Kong
Principal bankers
Wan Chai Banking Corporation

Kowloon Bank Limited
Auditor
Deloitte Touche Tohmatsu
Solicitors
Kwan, Lee & Wong
29
Directors’ business review

App 16.32 Listed entities, whether listed on the Main Board or GEM, are required to present in their annual
GR 18.41 reports a separate statement containing a discussion and analysis of the entity’s performance during
the year and the material factors underlying its results and financial position.
Both the Listing Rules and the GEM Rules set out a number of matters on which, as a minimum, the
directors should comment in their review, including:
• the group’s liquidity and financial resources;

• the capital structure of the group;
• the state of the group’s order book;
• significant investments held and their performance;
• details of material acquisitions and disposals during the year;
• comments on segmental information;
• the number and remuneration of employees;
• details of charges on group assets;
• details of future plans for material investments or capital assets and sources of funding;
• gearing ratio;
• foreign exchange exposure and any related hedges; and
• details of contingent liabilities.
There is no ‘model’ for such a review. The analysis should focus on the key issues for the particular
reporting entity.
30
Corporate governance report

App 16.34 Listed entities, listed on the Main Board or GEM, are required to include a report on corporate
App 23.1 governance practices in their annual reports.
App 23.2
GR18.44(2) The report should contain at a minimum information of the following matters:
GR App 16.1
GR App 16.2 • corporate governance practices;
• directors’ securities transactions;
• the board of directors;
• chairman and chief executive officer;
• non-executive directors;
• remuneration of directors;
• nomination of directors;
• auditors’ remuneration; and
• audit committee.
App 23.3 In addition, the report encourages disclosures regarding details of the following matters:
GR App 16.3
• share interests of senior management;
• shareholders’ rights;
• investor relations;
• internal controls; and
• management functions.
There is no ‘model’ for a corporate governance report. The content of this report should reflect the
corporate governance practices of the particular reporting entity.
The HKICPA published a guideline on internal controls titled “Internal Control and Risk Management
- A Basic Framework” in order to provide guidance to entities on how to perform the review in relation
to internal controls.
31
App 16.12 Profiles of directors and senior management

GR 18.39
Executive directors Independent non-executive directors
Gary D.K. Wong, Chairman and Managing Tiara Cheung

Director
Ms. Tiara Cheung, 41, was appointed as a non-
Mr. Gary D.K. Wong, 53, is a design engineer. executive director in March 2000 and serves on
He has been with the Group since its the Audit Committee of the Company. She
formation, holding a number of Board worked for a number of years in marketing and
positions before becoming Managing Director public relations positions with Secor Toys Limited
in 1998. He has been with the Group for more before establishing a consultancy practice in
than 15 years. 1999.
Daniel D.D. Lee, Finance Director Florence K.Y. Tang
Mr. Daniel D.D. Lee, 49, is a chartered Ms. Florence K.Y. Tang, 54, is one of Hong
accountant and holds a business degree from Kong’s leading residents with a distinguished
the University of Ontario. He joined the Board record in the business community. She joined
as Finance Director in 2002, having previously the Board as a non-executive director in 2006
held senior positions in a number of and serves on the Audit Committee of the
manufacturing entities. He has been with the Company. She is a member of the Hong Kong
Group for 6 years. Development Corporation and of the Community
Development Project.
Derek S.Y. Wong John Banks
Mr. Derek S.Y. Wong, 44, is an executive Mr. John Banks, 45, was appointed as a non-
director with special responsibility for product executive director in April 2007 and serves on
development. He is an electronic engineer the Audit Committee of the Company. He is a
with previous experience with multi-national chartered accountant and has many years of
conglomerates in the electronics industry. He experience in corporate finance. Mr. Banks
joined the Board in 2005 and has over 5 year holds directorships in a number of public
experiences in product development. Derek companies in Hong Kong.
S.Y. Wong is a brother of Gary D.K. Wong.
Senior management
GR 18.44 Bruno Gimeli Mr. William Y.S. Lee
Mr. Bruno Gimeli, 46, is the chief executive. William Y.S. Lee, 42, is the chief financial
He is primarily responsible for sales and controller and the qualified accountant
marketing. He held senior marketing positions responsible for the financial reporting procedures
with a number of Hong Kong companies and internal controls. He also acts as the
before joining the Company in 2003. company secretary, and as the compliance
officer responsible for liaison with The Stock
Exchange of Hong Kong Limited. He joined the
Company in 2002. He is an associate of the
Hong Kong Institute of Certified Public
Accountants and the Hong Kong Institute of
Company Secretaries.
32
Directors’ report
s129D(1) The directors present their annual report and the audited consolidated financial statements for the
year ended 31 December 2008.
s129D(3)(a) Principal activities
The Company acts as an investment holding company and provides corporate management
services. The activities of its principal subsidiaries, associates and jointly controlled entities are set
out in notes 58, 24 and 25 respectively to the consolidated financial statements.
In prior years, the Group was also engaged in the manufacture of bicycle and the construction
businesses. These operations were discontinued in the current year (see note 11).
s129D(3)(b) Results and appropriations

s129D(3)(c)
The results of the Group for the year ended 31 December 2008 are set out in the consolidated
income statement on page 43.
The directors now recommend the payment of a final dividend of HK26.31 cents per share to the
shareholders on the register of members on 25 May, 2009, amounting to approximately HK$4.688
million, and the retention of the remaining profit for the year of approximately HK$22.688 million.
s129D(3)(f) Fixed assets
Details of the movements during the year in the fixed assets of the Group are set out in note 18 to
the consolidated financial statements.
s129D(3)(g) Share capital

App 16.10(4)
GR 18.14 Details of the movements during the year in the share capital of the Company are set out in note 42
LR 10.06(4)(b) to the consolidated financial statements.
GR 13.13(2)
During the year, the Company repurchased certain of its own shares through The Stock Exchange
of Hong Kong Limited, details of which are set out in note 42 to the consolidated financial
statements. The directors considered that, as the Company’s shares were trading at a discount to
the net asset value per share, the repurchases would increase the net asset value per share of the
Company.
App 16.29 Distributable reserves of the Company

GR 18.37
GR 24.21 The Company’s reserves available for distribution to shareholders as at 31 December 2008
GR 25.33 amounted to approximately HK$99 million (2007: HK$87 million).
33
Directors’ report - continued
Directors
s129D(3)(i) The directors of the Company during the year and up to the date of this report were:
Executive directors
Gary D.K. Wong

Daniel D.D. Lee
Derek S.Y. Wong
Independent non-executive directors
Tiara Cheung
Florence K.Y. Tang
John Banks
In accordance with the provisions of the Company’s Articles of Association, Messr. Daniel D.D. Lee
retires by rotation and, being eligible, offers himself for re-election.
Directors’ service contracts
App 16.14 No director proposed for re-election at the forthcoming annual general meeting has a service
GR 18.24(1) contract which is not determinable by the Group within one year without payment of compensation
(other than statutory compensation).
34
App 16.13(1),(2) Directors’ and chief executive’s interests in shares and share options
PN 5(3.2),(3.3) At 31 December 2008, the interests of certain directors and Mr. Bruno Gimeli, the chief executive of
GR18.15(1),(2) the Company and their associates in the shares and share options of the Company and its
GR 18.17 associated corporations, as recorded in the register maintained by the Company pursuant to
GR 18.17A Section 352 of the Securities and Futures Ordinance, or as otherwise notified to the Company and
The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions
by Directors of Listed Companies, were as follows:
Long positions
(a) Ordinary shares of HK$1 each of the Company
Percentage
Number of of the issued
issued ordinary share capital of
Name Capacity shares held the Company
Directors
Mr. Gary D.K. Wong Beneficial owner 45,000 0.3%

Held by spouse 35,000 0.2%
Held by controlled
corporations (Note 1) 10,570,000 59.3%
_________ _________
10,650,000 59.8%
_________ _________
Mr. Daniel D.D. Lee Beneficial owner 124,000 0.7%

Held by spouse 4,000 0.02%
Held by controlled
corporation (Note 2) 249,000 1.4%
_________ _________
377,000 2.12%
_________ _________
35
SFOs 308 (b) Share options

GR 18.45
Number of Number of
Name Capacity options held underlying shares
Directors
Mr. Gary D.K. Wong Beneficial owner 60,000 60,000

Mr. Daniel D.D. Lee Held by spouse 60,000 60,000
_________ _________
120,000 120,000
_________ _________
Chief executive
Mr. Bruno Gimeli Beneficial owner 60,000 60,000

_________ _________
Notes:
1. Mr. Gary D.K. Wong is deemed to be interested in 10,570,000 ordinary shares of the Company
through his beneficial interests in the following corporations:
Percentage
of the issued
share capital of Number
the corporation of shares held
ABC Inc. 35% 55,000

XYE Company Limited 35% 106,000
Group Holdings Limited 60% 10,409,000
_________
10,570,000
_________
2. Mr. Daniel D.D. Lee beneficially owns 10,000 shares of HK$1 each in AAA Co. Ltd.,
representing approximately 40% of the issued share capital of that company. AAA Co. Ltd.
beneficially owns 249,000 ordinary shares of the Company.
App 16.13(1),(2) Other than the holdings disclosed above and nominee shares in certain subsidiaries held in trust for
GR 18.15(1),(2) the Group, none of the directors, chief executive and their associates, had any interests or short
positions in any shares, underlying shares or debentures of the Company or any of its associated
corporations as at 31 December 2008.
36
Share options
The Company
LR 17.09 Particulars of the Company’s share option scheme are set out in note 55 to the consolidated
GR 23.09 financial statements.
LR 17.07 The following table discloses movements in the Company’s share options during the year:
GR 23.07
Outstanding Granted Exercised Forfeited Expired Outstanding
Option at beginning during during during during at end of
type of year year year year year year
PN 5(3.3)(1) Note 3 Category 1: Directors and chief executive

GR 18.17A(1)
Note 3 Mr. Gary D.K. Wong 2007A 80,000 - (80,000) - - -
GR 18.28(7) 2007B 75,000 - (75,000) - - -
2008 - 60,000 - - - 60,000
Mr. Daniel D.D. Lee 2007A 30,000 - (30,000) - - -

2008 - 60,000 - - - 60,000
Mr. Bruno Gimeli 2008 - 60,000 - - - 60,000

_______ _______ _______ _______ _______ _______
Total directors and chief executive 185,000 180,000 (185,000) - - 180,000

_______ _______ _______ _______ _______ _______
PN 5(3.4)(1) Note 4 Category 2: Substantial shareholders

GR 18.17B(1)
Note 3 Mr. Francis F.G. Chan - - - - - -
YZ Limited - - - - - -
_______ _______ _______ _______ _______ _______
Total substantial shareholders - - - - - -

_______ _______ _______ _______ _______ _______
Category 3: Employees
2007A 15,000 - (15,000) - - -

2007B 75,000 - (75,000) - - -
2008 - 40,000 (39,000) - - 1,000
_______ _______ _______ _______ _______ _______
Total employees 90,000 40,000 (129,000) - - 1,000

_______ _______ _______ _______ _______ _______
Total all categories 275,000 220,000 (314,000) - - 181,000

_______ _______ _______ _______ _______ _______
LR 17.07(2) The closing price of the Company’s shares immediately before 31 March 2008, the date of grant of
GR 23.07(2) the 2008 options, was HK$3.15.
LR 17.07(3) The weighted average closing price of the Company’s shares immediately before the dates on
GR 23.07(3) which the share options were exercised was HK$2.83.
37
The subsidiary
LR 17.09 Particulars of the share option scheme of Kowloon Limited, a subsidiary of the Company (listed on
GR 23.09 the GEM Board of The Stock Exchange of Hong Kong Limited), are set out in note 55 to the
consolidated financial statements.
LR 17.07 The following table discloses movements in Kowloon Limited’s share options during the year:
GR 23.07
Option at beginning during during during during at end of
type of year year year year year year
Employees 2007 746,000 - - - - 746,000

_______ _______ _______ _______ _______ _______
s129D(3)(k) Arrangements to purchase shares or debentures
Other than the option holdings disclosed above, at no time during the year was the Company, its
holding company, or any of its subsidiaries or fellow subsidiaries, a party to any arrangements to
enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or
debentures of, the Company or any other body corporate.
s129D(3)(j) Directors’ interests in contracts of significance

App 16.15
GR 18.25 No contract of significance to which the Company, its holding company, fellow subsidiaries or
subsidiaries was a party and in which a director of the Company had a material interest, whether
directly or indirectly, subsisted at the end of the year or at any time during the year.
s162A(1)(a) Management contract

s129D(3)(ia)
A.B. Consultant Company Limited has a management services contract with the Group for a period
of three years starting from 1 January 2007. Mr. Gary D.K. Wong is a director and controlling
shareholder of that company which received management service fees amounting to HK$240,000
(2007: HK$240,000) during the year.
38
App 16.13(3) Substantial shareholders

PN 5(3.2), (3.4)
GR 18.16 As at 31 December 2008, the register of substantial shareholders maintained by the Company
GR 18.17 pursuant to Section 336 of the Securities and Futures Ordinance shows that other than the interests
GR 18.17B disclosed above in respect of certain directors and the chief executive, the following shareholders
had notified the Company of relevant interests in the issued share capital of the Company.
Long positions
(a) Ordinary shares of HK$1 each of the Company

Percentage
Number of of the issued
issued ordinary share capital of
Name of shareholder Capacity shares held the Company
Mr. Francis F.G. Chan Held by controlled 2,263,000 12.7%

corporation (note)
Group Holdings Limited Beneficial owner 10,409,000 58.4%
(b) Share options
Number of Number of
Name of shareholder Capacity share options underlying shares
Mr. Francis F.G. Chan - - -
Other than as disclosed above, the Company has not been notified of any other relevant interests
or short positions in the issued share capital of the Company as at 31 December 2008.
39
App 16.12B Independent non-executive directors

GR 18.39B
The Company has received, from each of the independent non-executive directors, an annual
confirmation of his independence pursuant to Rule 3.13 of the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited. The Company considers all of the
independent non-executive directors are independent.
App 16.8(1)&(2) Connected transaction

LR 14A.45
LR 14A.46 On 5 January 2008, the Company acquired a property in Shatin from XYZ Company Limited, a
GR 18.09(1),(2) company in which Mr. Gary D.K. Wong has a controlling interest. The consideration of
GR 20.45 HK$1,000,000 was based on an independent valuation carried out by Messrs R & P Trent,
GR 20.46 Chartered Surveyors.
LR 8.10(2)(b)&(c) Interests in competitors

GR 18.45
GR 11.04 Mr. Derek S.Y. Wong holds a 80% interest in MNO Ltd., a company engaged in the manufacture of
toys and which therefore competes with the Group in certain aspects of its business.
App 16.24B Emolument policy

GR 18.29A
The emolument policy for the employees of the Group is set up by the Remuneration Committee on
the basis of their merit, qualifications and competence.
The emoluments of the directors of the Company are decided by the Remuneration Committee,
having regard to the Group’s operating results, individual performance and comparable market
statistics.
The Company has adopted a share option scheme as an incentive to directors and eligible
employees, details of the scheme is set out in note 55 to the consolidated financial statements.
App 16.20 Pre-emptive rights

GR 17.39
GR 17.27(2) There are no provisions for pre-emptive rights under the Company’s bye-laws, or the laws of
Bermuda, which would oblige the Company to offer new shares on a pro-rata basis to existing
shareholders.
App 16.34A Sufficiency of public float

LR 13.35
GR17.38A The Company has maintained a sufficient public float throughout the year ended 31 December
2008.
s129D(3)(d),(e) Charitable donations
During the year, the Group made charitable donations amounting to HK$250,000.
40
Major customers and suppliers
Details of the Group’s transactions with its major suppliers and customers during the year are set
out below:
App 16.31(1),(2) In order to maintain its competitiveness, especially under the volatile market conditions during the
GR 18.40(1),(2) last few months, the Group has continued to search for suitable suppliers to source its raw
materials. The Group has successfully reduced purchases from its largest supplier from 20% of
total purchases in 2007 to 10% in the current year. In 2008, the five largest suppliers comprised
34% (2007: 45%) of the Group’s total purchases, evidencing the purchasing department’s
commitment to ensuring that the Group is not dependent on any one supplier, and that our
purchases are at a fair market price.
App 16.31(3),(4) In 2008, the Group’s largest customer accounted for 22% (2007: 22%) of turnover. The five largest
GR 18.40(3),(4) customers remain the same as 2007, although their combined contribution to total sales has
decreased slightly from 45% to 42% in the current year.
App 16.31(5) At no time during the year did a director, an associate of a director or a shareholder of the Company
GR 18.40(5) (which to the knowledge of the directors owns more than 5% of the Company’s share capital) have
an interest in any of the Group’s five largest suppliers or customers.
s129D(3)(l) Post balance sheet events
Details of significant events occurring after the balance sheet date are set out in note 60 to the
consolidated financial statements.
Auditor
A resolution will be submitted to the annual general meeting to re-appoint Messrs. Deloitte Touche
Tohmatsu as auditor of the Company.
s129D(2) On behalf of the Board
Gary D.K. Wong

Chairman
21 January 2009
41
HKSA 700(18) Independent auditor’s report
HKSA 700(20) To the members of Hong Kong GAAP Limited

(incorporated in Bermuda with limited liability)
HKSA 700(22) We have audited the consolidated financial statements of Hong Kong GAAP Limited (the
“Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 43 to 151
which comprise the consolidated balance sheet as at 31 December 2008, and the consolidated
income statement, the [consolidated statement of changes in equity/statement of recognised
income and expense] and the consolidated cash flow statement for the year then ended, and a
summary of significant accounting policies and other explanatory notes.
Directors’ responsibility for the consolidated financial statements
HKSA 700(28) The directors of the Company are responsible for the preparation and the true and fair presentation
of these consolidated financial statements in accordance with Hong Kong Financial Reporting
Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure
requirements of the Hong Kong Companies Ordinance. This responsibility includes designing,
implementing and maintaining internal control relevant to the preparation and the true and fair
presentation of the consolidated financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
HKSA 700(32) Our responsibility is to express an opinion on these consolidated financial statements based on our
HKSA 700(34) audit and to report our opinion solely to you, as a body, in accordance with Section 90 of the
Professional Risk Bermuda Companies Act, and for no other purpose. We do not assume responsibility towards or
Management accept liability to any other person for the contents of this report. We conducted our audit in
Bulletin No. 2 accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified
Public Accountants. Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance as to whether the consolidated financial
statements are free from material misstatement.
HKSA 700(37) An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and true and fair
presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by the directors,
as well as evaluating the overall presentation of the consolidated financial statements.
HKSA 700(38) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
HKSA 700(39),(40) In our opinion, the consolidated financial statements give a true and fair view of the state of affairs
of the Group as at 31 December 2008 and of the Group’s profit and cash flows for the year then
ended in accordance with Hong Kong Financial Reporting Standards and have been properly
prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.
HKSA 700(50) Deloitte Touche Tohmatsu

Certified Public Accountants
HKSA 700(57) Hong Kong
HKSA 700(52) 21 January 2009
42
HKAS 1.8(b) Consolidated income statement

HKAS 1.46(b),(c) for the year ended 31 December 2008 [Alt 1]
HKAS 1.104 NOTES 2008 2007

HKAS 1.46(d),(e) HK$’000 HK$’000
Continuing operations
HKAS 1.81(a) Revenue 5 140,918 151,840

HKAS 1.88 Cost of sales (87,899) (91,840)
_______ _______
HKAS 1.83 Gross profit 53,019 60,000

HKAS 1.83 Investment and other income 7 4,339 3,330
HKAS 1.83 Other gains and losses 8 1,462 446
HKAS 1.88 Distribution and selling expenses (5,087) (4,600)
HKAS 1.88 Administrative expenses (16,513) (19,992)
HKAS 1.81(c) Share of profits of associates 1,186 1,589
HKAS 1.81(b) Finance costs 9 (5,034) (6,023)
HKAS 1.88 Other expenses (2,656) (2,612)
_______ _______
HKAS 1.83 Profit before tax 30,716 32,138

HKAS 1.81(d) Income tax expense 10 (11,650) (11,801)
_______ _______
HKAS 1.83 Profit for the year from continuing operations 19,066 20,337
Discontinued operations
HKAS 1.81(e) Profit for the year from discontinued operations 11 8,310 9,995
HKFRS 5.33(a) _______ _______
HKAS 1.81(f) Profit for the year 13 27,376 30,332

_______ _______
Attributable to:
HKAS 1.82(b) Equity holders of the Company 23,376 27,569

HKAS 1.82(a) Minority interests 4,000 2,763
HKAS 27.33 _______ _______
27,376 30,332
_______ _______
HKAS 33.66&67 Earnings per share 17

App 16.4(1)(g)
GR 18.50B(1)(m) From continuing and discontinued operations
Basic (HK cents per share) 104.12 119.84

_______ _______
Diluted (HK cents per share) 98.10 119.12

_______ _______
From continuing operations

_______ _______

_______ _______
Note: The format outlined above aggregates expenses according to their function.
43
HKAS 1.8(b) Consolidated income statement

HKAS 1.104 NOTES 2008 2007

HKAS 1.46(d),(e) HK$’000 HK$’000
HKAS 1.81(a) Revenue 5 140,918 151,840

HKAS 1.83 Investment and other income 7 4,339 3,330
HKAS 1.83 Other gains and losses 8 1,462 446
HKAS 1.88 Changes in inventories of finished goods and
HKAS 1.88 work in progress 1,270 2,118
HKAS 1.88 Raw materials and consumables used (78,785) (85,406)
HKAS 1.88 Employee benefits expense (9,803) (11,697)
HKAS 1.88 Depreciation and amortisation expense (12,412) (13,878)
HKAS 1.81(c) Share of profits of associates 1,186 1,589
HKAS 1.81(b) Finance costs 9 (5,034) (6,023)
HKAS 1.88 Other expenses (12,425) (10,181)
_______ _______
HKAS 1.83 Profit before tax 30,716 32,138

HKAS 1.81(d) Income tax expense 10 (11,650) (11,801)
_______ _______
HKAS 1.83 Profit for the year from continuing operations 19,066 20,337
HKAS 1.81(e) Profit for the year from discontinued operations 11 8,310 9,995
HKFRS 5.33(a) _______ _______
HKAS 1.81(f) Profit for the year 13 27,376 30,332

_______ _______
Attributable to:
HKAS 1.82(b) Equity holders of the Company 23,376 27,569

HKAS 1.82(a) Minority interests 4,000 2,763
HKAS 27.33 _______ _______
27,376 30,332
_______ _______
Earnings per share 17
HKAS 33.66&67 From continuing and discontinued operations

App 16.4(1)(g)
GR 18.50B(1)(m) Basic (HK cents per share) 104.12 119.84
_______ _______

_______ _______

_______ _______

_______ _______
Note: The format outlined above aggregates expenses according to their nature.
44
HKAS 1.8(a) Consolidated balance sheet

HKAS 1.46(b),(c) at 31 December 2008
HKAS 1.104 NOTES 2008 2007

HKAS 1.46(d),(e) HK$’000 HK$’000
HKAS 1.51 Non-current Assets
HKAS 1.68(a) Property, plant and equipment 18 108,235 131,461

HKAS 1.69 Prepaid lease payments 19 2,900 3,000
HKAS 1.68(b) Investment properties 20 136 132
HKAS 1.69 Goodwill 21 20,253 24,060
HKAS 1.68(c) Other intangible assets 23 9,739 11,325
HKAS 1.68(e) Interests in associates 24 8,425 7,269
HKAS 1.68(d), 69 Held-to-maturity investments 26 2,059 1,658
HKAS 1.68(d), 69 Available-for-sale investments 27 8,140 7,858
HKAS 1.69 Finance lease receivables 28 830 717
HKAS 1.68(n), 70 Deferred tax assets 29 1,714 1,023
HKAS 1.68(d), 69 Other financial assets 30 212 140
_______ _______
162,643 188,643
_______ _______
HKAS 1.51 Current Assets
HKAS 1.68(g) Inventories 31 18,884 21,794

HKAS 1.69 Finance lease receivables 28 198 188
HKAS 1.68(d), 69 Loan receivables 32 2,981 2,981
HKAS 1.69 Amounts due from directors 33 656 107
HKAS 1.68(h) Trade and other receivables 34 18,350 16,062
HKAS 1.69 Amounts due from customers for contract work 35 240 230
HKAS 1.69 Tax recoverable 85 60
HKAS 1.68(d), 69 Held-to-maturity investments 26 4,804 3,604
HKAS 1.68(d), 69 Held-for-trading investments 36 12,480 8,448
HKAS 1.68(d), 69 Other financial assets 30 316 257
HKAS 1.69 Pledged bank deposits 37 2,000 2,000
HKAS 1.68(i) Bank balances and cash 37 18,199 17,778
_______ _______
79,193 73,509
HKAS 1.68A(a) Assets classified as held for sale 12 22,336 -
HKFRS 5.38 _______ _______
101,529 73,509
_______ _______
HKAS 1.51 Current Liabilities
HKAS 1.69 Amounts due to customers for contract work 35 36 15

HKAS 1.68(j) Trade and other payables 38 16,366 21,223
HKAS 1.68(m) Tax liabilities 5,133 5,868
HKAS 1.69 Borrowings 39 21,899 25,168
HKAS 1.69 Obligations under finance leases 40 9 54
HKAS 1.68(k) Provisions 41 3,461 3,247
HKAS 1.68(l), 69 Other financial liabilities 30 104 18
HKAS 1.68(i), 69 Bank overdrafts 37 538 378
_______ _______
47,546 55,971
HKAS 1.68A(b) Liabilities associated with assets
HKFRS 5.38 classified as held for sale 12 3,684 -
_______ _______
51,230 55,971
_______ _______
App 16.4(2)(d) Net Current Assets 50,299 17,538

GR 18.50B(2)(d) _______ _______
App 16.4(2)(e) Total Assets less Current Liabilities 212,942 206,181

GR 18.50B(2)(e) _______ _______
45
Consolidated balance sheet

at 31 December 2008 - continued
NOTES 2008 2007

HK$’000 HK$’000
Capital and Reserves
HKAS 1.69 Share capital 42 17,819 23,005

HKAS 1.69 Share premium and reserves 43 129,216 124,029
_______ _______
HKAS 1.68(p) Equity attributable to equity holders of the Company 147,035 147,034
HKAS 1.69 Share options reserve of a subsidiary 500 500
HKAS 1.68(o) Minority interests 23,505 19,505
_______ _______
Total equity 171,040 167,039

_______ _______
HKAS 1.51 Non-current Liabilities
HKAS 1.68(n), 70 Deferred tax liabilities 29 6,305 4,716

HKAS 1.69 Borrowings 39 28,642 31,713
HKAS 1.68(l), 69 Convertible loan notes 44 4,144 -
HKAS 1.69 Obligations under finance leases 40 5 35
HKAS 1.68(k) Provisions 41 2,298 2,326
HKAS 1.69 Retirement benefit obligations 56 508 352
HKAS 1.68(l), 69 Other financial liabilities 30 - -
_______ _______
41,902 39,142
_______ _______
212,942 206,181
_______ _______
HKAS 10.17 The consolidated financial statements on pages 43 to 151 were approved and authorised for issue
by the board of directors on 21 January 2009 and are signed on its behalf by:
s129B(1) Gary D.K. Wong Daniel D.D. Lee__________ ___

Chairman and managing director Finance director
46
HKAS 1.8(c)(i) Consolidated statement of changes in equity

HKAS 1.46 for the year ended 31 December 2008 [Alt 1]
Attributable to equity holders of the Company
Convertible
loan notes Properties Investments Share Share options
Share Share equity revaluation revaluation Translation options Hedging Retained reserve of a Minority
capital premium reserve reserve reserve reserve reserve reserve profits Total subsidiary interests Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2008 23,005 26,474 - 1,653 527 317 246 278 94,534 147,034 500 19,505 167,039
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
HKAS 1.96(b) Deficit on revaluation of properties - - - (610) - - - - - (610) - - (610)

HKFRS 7.23(c) Gain on cash flow hedges - - - - - - - 406 - 406 - - 406
HKFRS 7.20(a)(ii) Loss on fair value changes of
available-for-sale investments - - - - (400) - - - - (400) - - (400)
HKAS 1.96(b) Exchange differences arising on
translation of foreign operations - - - - - (71) - - - (71) - - (71)
HKAS 1.96(b) Deferred tax - - - 152 100 - - (101) - 151 - - 151
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
HKAS 1.96(b) Net (expense) income recognised

directly in equity - - - (458) (300) (71) - 305 - (524) - - (524)
HKAS 1.96(a) Profit for the year - - - - - - - - 23,376 23,376 - 4,000 27,376
HKFRS 7.23(d) Transfer to profit or loss on cash flow
hedges - - - - - - - (355) - (355) - - (355)
HKFRS 7.23(e) Transfer to initial carrying amount of
non-financial items on cash flow hedges - - - - - - - - - - - - -
Deferred tax on transfer to profit or loss - - - - - - - 89 - 89 - - 89
Transfer to profit or loss on
disposal of foreign operations - - - - - (120) - - - (120) - - (120)
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
HKAS 1.96(c) Total recognised income and expense

for the year - - - (458) (300) (191) - 39 23,376 22,466 - 4,000 26,466
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
HKAS 1.97(a) Recognition of equity-settled share

based payments - - - - - - 218 - - 218 - - 218
HKAS 1.97(a) Issue of ordinary shares upon
exercise of share options 314 433 - - - - (285) - - 462 - - 462
HKAS 1.97(a) Transaction costs attributable to issue
of new shares - (6) - - - - - - - (6) - - (6)
HKAS 1.97(a) Repurchase of shares (5,500) (10,848) - - - - - - (555) (16,903) - - (16,903)
HKAS 1.97(a) Transaction costs attributable to
repurchase of shares - (227) - - - - - - - (227) - - (227)
HKAS 1.97(a) Issue of convertible notes - - 834 - - - - - - 834 - - 834
HKAS 1.97(a) Dividends recognised as distribution - - - - - - - - (6,635) (6,635) - - (6,635)
HKAS 1.97(a) Transfer to retained profits - - - - - - - (3) 3 - - - -
Deferred tax - - (208) - - - - - - (208) - - (208)
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
At 31 December 2008 17,819 15,826 626 1,195 227 126 179 314 110,723 147,035 500 23,505 171,040
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
47
HKAS 1.8(c)(i) Consolidated statement of changes in equity

HKAS 1.46(b), (c) for the year ended 31 December 2008 - continued [Alt 1]
HKAS 1.97(b), (c) Convertible

HKAS 1.46(d), (e) loan notes Properties Investments Share Share options
Share Share equity revaluation revaluation Translation options Hedging Retained reserve of a Minority
capital premium reserve reserve reserve reserve reserve reserve profits Total subsidiary interests Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2007 23,005 26,474 - 54 470 140 - 242 73,444 123,829 - 16,742 140,571
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
HKAS 1.96(b) Surplus on revaluation of properties - - - 2,132 - - - - - 2,132 - - 2,132

HKFRS 7.23(c) Gain on cash flow hedges - - - - - - - 316 - 316 - - 316
HKFRS 7.20(a)(ii) Gain on fair value changes of
available-for-sale investments - - - - 76 - - - - 76 - - 76
HKAS 1.96(b) Exchange differences arising on
translation of foreign operations - - - - - 177 - - - 177 - - 177
HKAS 1.96(b) Deferred tax - - - (533) (19) - - (79) - (631) - - (631)
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
HKAS 1.96(b) Net income (expense) recognised - - - 1,599 57 177 - 237 - 2,070 - - 2,070
directly in equity
HKAS 1.96(a) Profit for the year - - - - - - - - 27,569 27,569 - 2,763 30,332
HKFRS 7.20(a)(ii) Transfer to profit or loss on sale of
available-for-sale investments - - - - - - - - - - - - -
HKFRS 7.23(d) Transfer to profit or loss on cash
flow hedges - - - - - - - (287) - (287) - - (287)
HKFRS 7.23(e) Transfer to initial carrying amount of
non-financial items on cash flow hedges - - - - - - - - - - - - -
Deferred tax on transfer to profit or loss - - - - - - - 86 - 86 - - 86
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
HKAS 1.96(c) Total recognised income for the year - - - 1,599 57 177 - 36 27,569 29,438 - 2,763 32,201
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
HKAS 1.97(a) Recognition of equity-settled share

based payments - - - - - - 246 - - 246 500 - 746
HKAS 1.97(a) Dividends recognised as distribution - - - - - - - - (6,479) (6,479) - - (6,479)
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
At 31 December 2007 23,005 26,474 - 1,653 527 317 246 278 94,534 147,034 500 19,505 167,039
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Note: See next page for the discussion of the format of the statement of changes in equity.
48
HKAS 1.8(c)(ii) Consolidated statement of recognised income and expense

2008 2007
HK$’000 HK$’000
HKAS 16.77(f) (Deficit)Surplus on revaluation of properties (610) 2,132

HKFRS 7.23(c) Gain on cash flow hedges 406 316
HKFRS 7.20(a)(ii) (Loss)Gain on fair value changes of available-for-sale investments (400) 76
HKAS 21.52(b) Exchange differences arising on translation of foreign operations (71) 177
HKAS 19.93B Actuarial gains (losses) on defined benefit plans (see note below) - -
HKAS 1.96(b) Deferred tax 151 (631)
_______ _______
HKAS 1.96(b) Net (expense) income recognised directly in equity (524) 2,070
HKAS 1.96(a) Profit for the year 27,376 30,332

HKFRS 7.20(a)(ii) Transfer to profit or loss on sale of available-for-sale investments - -
HKFRS 7.23(d) Transfer to profit or loss on cash flow hedges (355) (287)
HKFRS 7.23(e) Transfer to initial carrying amount of non-financial items
on cash flow hedges - -
Deferred tax on transfer to profit or loss 89 86
Transfer to profit or loss on disposal of foreign operations (120) -
_______ _______
HKAS 1.96(c) Total recognised income for the year 26,466 32,201
_______ _______
HKAS 1.96(c) Attributable to:
Equity holders of the Company 22,466 29,438
Minority interests 4,000 2,763
_______ _______
26,466 32,201
_______ _______
Note: HKAS 1 requires that the financial statements should include a statement showing either
all changes in equity, or changes in equity other than those arising from capital
transactions with owners and distributions to owners. The above illustrates an approach
which presents those changes in equity that represent income and expense in a separate
component of the financial statements. If this method of presentation is adopted, a
reconciliation of the opening and closing balances of share capital, reserves and retained
profits is required to be provided in the explanatory notes (see notes 42 and 43). An
alternative method of presenting changes in equity is illustrated on the previous page.
The format of the statement is generally an accounting policy choice. However, where the
entity has selected the option available under paragraph 93A of HKAS 19, Employee
Benefits, to recognise actuarial gains and losses outside profit or loss, those actuarial
gains and losses are required to be presented in a statement of recognised income and
expense as illustrated above. The entity is not permitted to present such changes in a
statement of changes in equity as illustrated in Alt 1 on the previous pages.
49
HKAS 1.8(d) Consolidated cash flow statement

HKAS 1.104 NOTES 2008 2007

HK$’000 HK$’000
HKAS 1.46(d), (e) Operating activities

HKAS 7.10
HKAS 7.18(b) Profit for the year 27,376 30,332
Adjustments for:
Income tax expense 14,810 14,799
Finance costs 5,184 6,157
Investment income (3,608) (2,351)
Gain on disposal of property, plant and equipment (6) (67)
Loss (gain) on fair value changes of
investment property 6 (8)
Gain on disposal of discontinued operations (1,940) -
Impairment loss recognised in respect of
trade receivables 40 420
Share of profits of associates (1,186) (1,589)
Depreciation and amortisation 14,179 17,350
Amortisation of prepaid lease payments 100 100
Impairment loss in respect of
property, plant and equipment 1,204 -
Impairment loss in respect of goodwill 15 -
Net foreign exchange (gain)/loss (152) 78
Equity-settled share-based payments expenses 218 746
Development costs expensed 502 440
_______ _______
Operating cash flows before movements in

working capital 56,742 66,407
(Increase) decrease in trade and other receivables (3,943) 2,287

Increase in inventories (1,796) (2,008)
Increase in held-for-trading investments (4,032) (490)
Decrease in trade and other payables (725) (2,627)
Increase (decrease) in provisions 113 (262)
Decrease in retirement benefit obligations 156 -
Increase in amount due from (to) customers for
contract work 11 -
Other [describe] - -
_______ _______
Cash generated from operations 46,526 63,307
HKAS 7.31 Interest paid (5,240) (6,184)

HKAS 7.35 Income taxes paid (13,619) (10,038)
_______ _______
Net cash generated by operating activities 27,667 47,085

_______ _______
50

HKAS 1.46(b),(c) for the year ended 31 December 2008 - continued [Alt 1]
NOTES 2008 2007

HK$’000 HK$’000
HKAS 7.10 Investing activities
Purchase of available-for-sale investments (688) (3,762)

Purchase of held-to-maturity investments (5,489) -
Redemption of held-to-maturity investments 4,000 4,000
HKAS 7.31 Interest received 2,315 1,304
Royalties and other investment income received 1,137 879
HKAS 7.37-38 Dividends received from associates 30 25
HKAS 7.31 Other dividends received 156 154
Amounts advanced to related parties (5,637) (5,088)
Proceeds from repayment of related party loans 5,088 2,355
Purchase of property, plant and equipment (24,853) (11,902)
Purchase of investment properties (10) (12)
Increase in finance lease receivables (123) -
Proceeds from disposal of property, plant
and equipment 11,231 22,295
Development costs paid (508) (798)
HKAS 7.39 Acquisition of subsidiaries 47 (622) -
HKAS 7.39 Disposal of a subsidiary 48 7,566 -
_______ _______
Net cash (used in)/generated in investing activities (6,407) 9,450

_______ _______
HKAS 7.10 Financing activities
Proceeds from issue of ordinary shares 462 -

Proceeds from issue of convertible loan notes 4,950 -
Payment for share issue expenses (6) -
Payment for repurchase of shares to:
- equity holders of the Company (16,903) -
Payment for share repurchase expenses (227) -
Proceeds from borrowings 15,000 12,265
Repayment of borrowings (16,800) (61,622)
Payment for debt issue costs (595) -
Repayment of obligations under finance leases (75) (88)
Proceeds from settlement of derivatives 164 237
Payment for settlement of derivatives (119) (277)
Dividends paid to:
HKAS 7.31 - equity holders of the Company (6,635) (6,479)
- minority interests - -
_______ _______
Net cash used in financing activities (20,784) (55,964)

_______ _______
Net increase in cash and cash equivalents 476 571

Cash and cash equivalents at the beginning
of the financial year 17,400 16,864
Effects of exchange rate changes on the balance
HKAS 7.28 of cash held in foreign currencies (40) (35)
_______ _______
Cash and cash equivalents at the end of the
HKAS 7.45 financial year 49 17,836 17,400
_______ _______
Note: The above illustrates the indirect method of reporting cash flows from operating activities.
51

HKAS 1.104 NOTES 2008 2007

HK$’000 HK$’000
HKAS 1.46(d), (e) Operating activities

HKAS 7.10
HKAS 7.18(a) Receipts from customers 211,426 214,497
Payments to suppliers and employees (160,957) (150,990)
Net cash outflow for held for trading investments (3,943) (200)
_______ _______
Cash generated from operations 46,526 63,307
HKAS 7.31 Interest paid (5,240) (6,184)

HKAS 7.35 Income taxes paid (13,619) (10,038)
_______ _______
Net cash generated in operating activities 27,667 47,085

_______ _______
HKAS 7.10 Investing activities
Purchase of available-for-sale investments (688) (3,762)

Purchase of held-to-maturity investments (5,489) -
HKAS 7.31 Redemption of held-to-maturity investments 4,000 4,000
Interest received 2,315 1,304
Royalties and other investment income received 1,137 879
HKAS 7.37-38 Dividends received from associates 30 25
HKAS 7.31 Other dividends received 156 154
Amounts advanced to related parties (5,637) (5,088)
Proceeds from repayment of related party loans 5,088 2,355
Purchase of property, plant and equipment (24,853) (11,902)
Purchase of investment properties (10) (12)
Increase in finance lease receivables (123) -
Proceeds from disposal of property,
plant and equipment 11,231 22,295
Development costs paid (508) (798)
HKAS 7.39 Acquisition of subsidiaries 47 (622) -
HKAS 7.39 Disposal of a subsidiary 48 7,566 -
_______ _______
Net cash (used in)/generated in investing activities (6,407) 9,450

_______ _______
52
Consolidated cash flow statement

for the year ended 31 December 2008 - continued [Alt 2]
NOTES 2008 2007

HK$’000 HK$’000
HKAS 7.10 Financing activities
Proceeds from issues of ordinary shares 462 -

Proceeds from issue of convertible loan notes 4,950 -
Payment for share issue expenses (6) -
Payment for repurchase of shares to:
- equity holders of the Company (16,903) -
Payment for shares repurchase expenses (227) -
Proceeds from borrowings 15,000 12,265
Repayment of borrowings (16,800) (61,622)
Payment for debt issue costs (595) -
Repayment of obligations under finance leases (75) (88)
Proceeds from settlement of derivatives 164 237
Payment for settlement of derivatives (119) (277)
Dividends paid to:
HKAS 7.31 - equity holders of the Company (6,635) (6,479)
- minority interests - -
_______ _______
Net cash used in financing activities (20,784) (55,964)

_______ _______
Net increase in cash and cash equivalents 476 571

Cash and cash equivalents at the beginning
of the financial year 17,400 16,864
Effects of exchange rate changes on the balance
HKAS 7.28 of cash held in foreign currencies (40) (35)
_______ _______
Cash and cash equivalents at the end of the

HKAS 7.45 financial year 49 17,836 17,400
_______ _______.
Note: The above illustrates the direct method of reporting cash flows from operating activities.
53
HKAS 1.8(e) Notes to the consolidated financial statements

HKAS 1.46(b),(c) for the year ended 31 December 2008
HKAS 1.103(b),(c)
1. General
s129A(1) The Company is incorporated in Bermuda as an exempted company with limited liability and its
HKAS1.126(a),(c) shares are listed on The Stock Exchange of Hong Kong Limited. Its parent and ultimate holding
HKAS 24.12 company is Group Holdings Limited (incorporated in the British Virgin Islands). The addresses of
the registered office and principal place of business of the Company are disclosed in the corporate
information section of the annual report.
HKAS 21.53 The consolidated financial statements are presented in Hong Kong dollars, which is the same as
the functional currency of the Company.
HKAS 1.126(b) The principal activities of the Company and its subsidiaries (the “Group”) are the manufacture and
sale of widgets and toys. The Group was also engaged in the manufacture of bicycles and
construction businesses, which were discontinued in the current year (see note 11).
HKAS 8.28 2. Application of new and revised Hong Kong Financial Reporting Standards
Sch 10: 17(6)(b) (“HKFRSs”)
App 16 Note 2.2
GR 18.04 Note In the current year, the Group has applied the following amendments and interpretations ("new
HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") which are
or have become effective.
HKAS 39 & HKFRS 7 (Amendments) Reclassification of Financial Assets

HK(IFRIC)-Int 11 HKFRS 2: Group and Treasury Share Transactions
HK(IFRIC)-Int 12 Service Concession Arrangements
HK(IFRIC)-Int 14 HKAS 19 – The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction
The application of the new HKFRSs had no material effect on how the results and financial position
for the current or prior accounting periods have been prepared and presented. Accordingly, no
prior period adjustment has been required.
54
Notes to the consolidated financial statements

for the year ended 31 December 2008 - continued
HKAS 8.30 The Group has not early applied the following new and revised standards, amendments or
HKAS 8.31 interpretations that have been issued but are not yet effective.
1
HKFRSs (Amendments) Improvements to HKFRSs
HKAS 1 (Revised) Presentation of Financial Statements2
HKAS 23 (Revised) Borrowing Costs2
HKAS 27 (Revised) Consolidated and Separate Financial Statements3
HKAS 32 & 1 (Amendments) Puttable Financial Instruments and Obligations Arising on
2
Liquidation
HKAS 39 (Amendment) Eligible hedged items3
HKFRS 1 & HKAS 27 (Amendments) Cost of an Investment in a Subsidiary, Jointly Controlled
Entity or Associate2
2
HKFRS 2 (Amendment) Vesting Conditions and Cancellations
HKFRS 3 (Revised) Business Combinations3
2
HKFRS 8 Operating Segments
HK(IFRIC)-Int 13 Customer Loyalty Programmes4
2
HK(IFRIC)-Int 15 Agreements for the Construction of Real Estate
HK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation5
3
HK(IFRIC)-Int 17 Distribution of Non-cash Assets to Owners
1
Effective for annual periods beginning on or after 1 January 2009 except for the amendments to
HKFRS 5, effective for annual periods beginning on or after 1 July 2009
2
Effective for annual periods beginning on or after 1 January 2009
3
Effective for annual periods beginning on or after 1 July 2009
4
Effective for annual periods beginning on or after 1 July 2008
5
Effective for annual periods beginning on or after 1 October 2008
The application of HKFRS 3 (Revised) may affect the accounting for business combination for
which the acquisition date is on or after the beginning of the first annual reporting period beginning
on or after 1 July 2009. HKAS 27 (Revised) will affect the accounting treatment for changes in a
parent's ownership interest in a subsidiary. The directors of the Company anticipate that the
application of the other new and revised standards, amendments or interpretations will have no
material impact on the results and the financial position of the Group.
Note: The above list is complete as of 31 December 2008. The potential impact of any new or
revised standards, amendments or interpretations released by the HKICPA after that date,
but before the issue of the consolidated financial statements, should also be considered
and disclosed.
55

HKAS 1.103(a) 3. Significant accounting policies

HKAS 1.108
HKAS 1.14 The consolidated financial statements have been prepared on the historical cost basis except for
App 16.5 certain properties and financial instruments, which are measured at revalued amounts or fair
GR 18.19 values, as explained in the accounting policies set out below.
The consolidated financial statements have been prepared in accordance with Hong Kong Financial
Reporting Standards issued by the HKICPA. In addition, the consolidated financial statements
include applicable disclosures required by the Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and
entities (including special purpose entities) controlled by the Company (its subsidiaries). Control is
achieved where the Company has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated
income statement from the effective date of acquisition or up to the effective date of disposal, as
appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Minority interests in the net assets of consolidated subsidiaries are presented separately from the
Group’s equity therein. Minority interests in the net assets consist of the amount of those interests
at the date of the original business combination and the minority’s share of changes in equity since
the date of the combination. Losses applicable to the minority in excess of the minority’s interest in
the subsidiary’s equity are allocated against the interests of the Group except to the extent that the
minority has a binding obligation and is able to make an additional investment to cover the losses.
Business combinations
The acquisition of businesses is accounted for using the purchase method. The cost of the
acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given,
liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control
of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s
identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under
HKFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except
for non-current assets (or disposal groups) that are classified as held for sale in accordance with
HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised
and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the
excess of the cost of the business combination over the Group’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the
Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent
liabilities exceeds the cost of the business combination, the excess is recognised immediately in
profit or loss.
The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion
of the net fair value of the assets, liabilities and contingent liabilities recognised.
56

Goodwill
Goodwill arising on acquisitions prior to 1 January 2005
Goodwill arising on an acquisition of net assets and operations of another entity or a jointly
controlled entity for which the agreement date is before 1 January 2005 represents the excess of
the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and
liabilities of the relevant acquiree at the date of acquisition.
For previously capitalised goodwill arising on acquisitions of net assets and operations of another
entity or a jointly controlled entity after 1 January 2001, the Group has discontinued amortisation
from 1 January 2005 onwards, and such goodwill is tested for impairment annually, and whenever
there is an indication that the cash generating unit to which the goodwill relates may be impaired
(see the accounting policy below).
Goodwill arising on acquisitions on or after 1 January 2005
Goodwill arising on an acquisition of a business or a jointly controlled entity (which is accounted for
using proportionate consolidation) for which the agreement date is on or after 1 January 2005
represents the excess of the cost of acquisition over the Group’s interest in the fair value of the
identifiable assets, liabilities and contingent liabilities of the relevant business or jointly controlled
entity at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment
losses.
Capitalised goodwill arising on an acquisition of a business or a jointly controlled entity is presented

separately in the consolidated balance sheet.
For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of
the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit
from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated
is tested for impairment annually, and whenever there is an indication that the unit may be impaired.
For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill
has been allocated is tested for impairment before the end of that financial year. When the
recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first,
and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in
the unit. Any impairment loss for goodwill is recognised directly in the consolidated income
statement. An impairment loss for goodwill is not reversed in subsequent periods.
On subsequent disposal of the relevant cash-generating unit or a jointly controlled entity, the
attributable amount of goodwill capitalised is included in the determination of the amount of profit or
loss on disposal.
57

Investments in associates
An associate is an entity over which the investor has significant influence and that is neither a
subsidiary nor an interest in a joint venture.
The results and assets and liabilities of associates are incorporated in these consolidated financial
statements using the equity method of accounting. Under the equity method, investments in
associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition
changes in the Group’s share of the net assets of the associates, less any identified impairment
loss. When the Group’s share of losses of an associate equals or exceeds its interest in that
associate (which includes any long-term interests that, in substance, form part of the Group’s net
investment in the associate), the Group discontinues recognising its share of further losses. An
additional share of losses is provided for and a liability is recognised only to the extent that the
Group has incurred legal or constructive obligations or made payments on behalf of that associate.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable
assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is
recognised as goodwill. The goodwill is included within the carrying amount of the investment and
is assessed for impairment as part of the investment.
Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and
contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in
profit or loss.
Where a group entity transacts with an associate of the Group, profits and losses are eliminated to
the extent of the Group’s interest in the relevant associate.
HKAS 31.57 Jointly controlled entities
Joint venture arrangements that involve the establishment of a separate entity in which venturers
have joint control over the economic activity of the entity are referred to as jointly controlled entities.
The Group recognises its interests in jointly controlled entities using proportionate consolidation.
The Group’s share of each of the assets, liabilities, income and expenses of the jointly controlled
entities are combined with the Group’s similar line items, line by line, in the consolidated financial
statements.
Any goodwill arising on the acquisition of the Group’s interest in a jointly controlled entity is
accounted for in accordance with the Group’s accounting policy for goodwill arising on the
acquisition of a business or a jointly controlled entity (see above).
Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and
contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in
profit or loss.
When a group entity transacts with a jointly controlled entity of the Group, profits or losses are
eliminated to the extent of the Group’s interest in the jointly controlled entity.
58

Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will
be recovered principally through a sale transaction rather than through continuing use. This
condition is regarded as met only when the sale is highly probable and the asset (or disposal group)
is available for immediate sale in its present condition.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of
the assets’ (disposal groups’) previous carrying amount and fair value less costs to sell.
HKAS 18.35(a) Revenue recognition

Sch 10:16(4)
Revenue is measured at the fair value of the consideration received or receivable and represents
amounts receivable for goods sold and services provided in the normal course of business, net of
discounts and sales related taxes.
Revenue from sale of goods is recognised when the goods are delivered and title has passed.
Service income is recognised when services are provided.
Revenue from construction contracts is recognised in accordance with the Group’s accounting
policy on construction contracts (see below).
Interest income from a financial asset excluding financial assets at fair value through profit or loss is
accrued on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts the estimated future cash receipts through the
expected life of the financial asset to that asset’s net carrying amount.
Dividend income from investments excluding financial assets at fair value through profit or loss is
recognised when the shareholders’ rights to receive payment have been established.
Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant
agreement. Royalties determined on a time basis are recognised on a straight-line basis over the
period of the agreement. Royalty arrangements that are based on production, sales and other
measures are recognised by reference to the underlying arrangement.
59

HKAS 16.73(a),(b), Property, plant and equipment

(c)
Property, plant and equipment including buildings held for use in the production or supply of goods
or services, or for administrative purposes are stated at cost or fair value less subsequent
depreciation and impairment losses.
Buildings held for use in the production or supply of goods or services, or for administrative
purposes, are stated in the consolidated balance sheet at their revalued amounts, being the fair
value at the date of revaluation less any subsequent accumulated depreciation and any subsequent
accumulated impairment losses. Freehold land is stated at revalued amount, being the fair value at
the date of revaluation less any subsequent accumulated impairment losses. Revaluations are
performed with sufficient regularity such that the carrying amount does not differ materially from that
which would be determined using fair values at the balance sheet date.
Any revaluation increase arising on revaluation of freehold land and buildings is credited to the
properties revaluation reserve, except to the extent that it reverses a revaluation decrease of the
same asset previously recognised as an expense, in which case the increase is credited to the
consolidated income statement to the extent of the decrease previously charged. A decrease in net
carrying amount arising on revaluation of an asset is dealt with as an expense to the extent that it
exceeds the balance, if any, on the properties revaluation reserve relating to a previous revaluation
of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation
surplus is transferred to retained profits.
Depreciation is provided to write off the cost or fair value of items of property, plant and equipment
other than freehold land over their estimated useful lives and after taking into account of their
estimated residual value, using the straight-line method.
Assets held under finance leases are depreciated over their expected useful lives on the same
basis as owned assets or, where shorter, the term of the relevant lease.
An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss
arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in the consolidated income statement in
the year in which the item is derecognised.
HKAS 40.75(a) Investment properties
Investment properties are properties held to earn rentals and/or for capital appreciation. On initial
recognition, investment properties are measured at cost, including any directly attributable
expenditure. Subsequent to initial recognition, investment properties are measured at their fair
values using the fair value model. Gains or losses arising from changes in the fair value of
investment property are included in profit or loss for the period in which they arise.
An investment property is derecognised upon disposal or when the investment property is

permanently withdrawn from use and no future economic benefits are expected from its disposals.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is included in the consolidated income
statement in the year in which the item is derecognised.
60

HKAS 11.39(b),(c) Construction contracts
Where the outcome of a construction contract can be estimated reliably, revenue and costs are
recognised by reference to the stage of completion of the contract activity at the balance sheet date,
as measured by the proportion that contract costs incurred for work performed to date bear to the
estimated total contract costs, except where this would not be representative of the stage of
completion. Variations in contract work, claims and incentive payments are included to the extent
that they have been agreed with the customer.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is
recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract
costs are recognised as expenses in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is
recognised as an expense immediately.
Where contract costs incurred to date plus recognised profits less recognised losses exceed
progress billings, the surplus is shown as amounts due from customers for contract work. For
contracts where progress billings exceed contract costs incurred to date plus recognised profits less
recognised losses, the surplus is shown as amounts due to customers for contract work. Amounts
received before the related work is performed are included in the consolidated balance sheet, as a
liability, as advances received. Amounts billed for work performed but not yet paid by the customer
are included in the consolidated balance sheet under trade and other receivables.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all
the risks and rewards of ownership to the lessee. All other leases are classified as operating
leases.
The Group as lessor
Amounts due from lessees under finance leases are recorded as receivables at the amount of the
Group’s net investment in the leases. Finance lease income is allocated to accounting periods so
as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect
of the leases.
Rental income from operating leases is recognised in the consolidated income statement on a
straight-line basis over the term of the relevant lease.
The Group as lessee
Assets held under finance leases are recognised as assets of the Group at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments. The
corresponding liability to the lessor is included in the consolidated balance sheet as a finance lease
obligation. Lease payments are apportioned between finance charges and reduction of the lease
obligation so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly to profit or loss, unless they are directly attributable to
qualifying assets, in which case they are capitalised in accordance with the Group’s general policy
on borrowing costs (see below).
Rentals payable under operating leases are charged to profit or loss on a straight-line basis over
the term of the relevant lease. Benefits received and receivable as an incentive to enter into an
operating lease are recognised as a reduction of rental expense over the lease term on a straight-
line basis.
Leasehold land
Interest in leasehold land is accounted for as operating leases and amortised over the lease term
on a straight-line basis except for those that are classified and accounted for as investment
properties under the fair value model.
61

Sch 10:12(14) Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies other
than the functional currency of that entity (foreign currencies) are recorded in the respective
functional currency (i.e. the currency of the primary economic environment in which the entity
operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance
sheet date, monetary items denominated in foreign currencies are retranslated at the rates
prevailing on the balance sheet date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair
value was determined. Non-monetary items that are measured in terms of historical cost in a
foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the translation of
monetary items, are recognised in profit or loss in the period in which they arise, except for
exchange differences arising on a monetary item that forms part of the Company’s net investment in
a foreign operation, in which case, such exchange differences are recognised in equity in the
consolidated financial statements. Exchange differences arising on the retranslation of non-
monetary items carried at fair value are included in profit or loss for the period except for differences
arising on the retranslation of non-monetary items in respect of which gains and losses are
recognised directly in equity, in which cases, the exchange differences are also recognised directly
in equity.
For the purposes of presenting the consolidated financial statements, the assets and liabilities of the
Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong
Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and
expenses are translated at the average exchange rates for the year, unless exchange rates
fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of
transactions are used. Exchange differences arising, if any, are recognised as a separate
component of equity (the translation reserve). Such exchange differences are recognised in profit
or loss in the period in which the foreign operation is disposed of.
Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a
foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign
operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange
differences arising are recognised in the translation reserve.
Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a
foreign operation before 1 January 2005 is treated as non-monetary foreign currency items of the
acquirer and reported using historical cost prevailing at the date of acquisition.
HKAS 23.29(a) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying

assets, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs
ceases when the assets are substantially ready for their intended use or sale. To the extent that
fixed-rate bank borrowings are used to finance a qualifying asset and are hedged in an effective fair
value hedge of interest rate risk, the capitalised borrowing costs reflected the hedged interest rate.
Investment income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
HKAS 20.39(a) Government grants
Government grants are recognised as income over the periods necessary to match them with the
related costs. Grants related to depreciable assets are presented as deferred income and are
released to income over the useful lives of the assets. Grants related to expense items are
recognised in the same period as those expenses are charged in the consolidated income
statement and are deducted in reporting the related expense.
62

HKAS 19.120A(a) Retirement benefit costs
Payments to defined contribution retirement benefit plans are charged as an expense when
employees have rendered service entitling them to the contributions.
For defined benefit retirement benefit plans, the cost of providing benefits is determined using the
projected unit credit method, with actuarial valuations being carried out at each balance sheet date.
Actuarial gains and losses which exceed 10 per cent of the greater of the present value of the
Group’s pension obligations and the fair value of plan assets are amortised over the expected
average remaining working lives of the participating employees. Past service cost is recognised
immediately to the extent that the benefits are already vested, and otherwise is amortised on a
straight-line basis over the average period until the amended benefits become vested.
The amount recognised in the consolidated balance sheet represents the present value of the
defined benefit obligation as adjusted for unrecognised actuarial gains and losses and
unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset
resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus
the present value of available refunds and reductions in future contributions to the plan.
Sch 10:12(15) Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as
reported in the consolidated income statement because it excludes items of income or expense that
are taxable or deductible in other years and it further excludes items that are never taxable or
deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in
the consolidated financial statements and the corresponding tax bases used in the computation of
taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor
the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the Group is able to
control the reversal of the temporary difference and it is probable that the temporary difference will
not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability
is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the balance sheet date. Deferred tax is charged or credited to profit or
loss, except when it relates to items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.
63

Intangible assets
Intangible assets acquired separately
HKAS 38.118(b) Intangible assets acquired separately and with finite useful lives are carried at costs less
accumulated amortisation and any accumulated impairment losses. Amortisation for intangible
assets with finite useful lives is provided on a straight-line basis over their estimated useful lives.
Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent
accumulated impairment losses (see the accounting policy in respect of impairment losses on
tangible and intangible assets below).
Gains or losses arising from derecognition of an intangible asset are measured at the difference
between the net disposal proceeds and the carrying amount of the asset and are recognised in the
consolidated income statement when the asset is derecognised.
Research and development expenditures
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from development expenditure is recognised only if

it is anticipated that the development costs incurred on a clearly-defined project will be recovered
through future commercial activity.
The amount initially recognised for internally-generated intangible asset is the sum of the
expenditure incurred from the date when the intangible asset first meets the recognition criteria.
Where no internally-generated intangible asset can be recognised, development expenditure is
charged to profit or loss in the period in which it is incurred.
HKAS 38.118(b) Subsequent to initial recognition, internally-generated intangible asset is reported at cost less
accumulated amortisation and accumulated impairment losses, on the same basis as intangible
assets acquired separately.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are identified and recognised separately from
goodwill where they satisfy the definition of an intangible asset and their fair values can be
measured reliably. The cost of such intangible assets is their fair value at the acquisition date.
HKAS 38.118(b) Subsequent to initial recognition, intangible assets with finite useful lives are carried at cost less
accumulated amortisation and any accumulated impairment losses. Amortisation for intangible
assets with finite useful lives is provided on a straight-line basis over their estimated useful lives.
Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent
accumulated impairment losses (see the accounting policy in respect of impairment losses on
tangible and intangible assets below).
Impairment of tangible and intangible assets other than goodwill (see the accounting policy in
respect of goodwill above)
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible
assets to determine whether there is any indication that those assets have suffered an impairment
loss. In addition, intangible assets with indefinite useful lives and intangible assets not yet available
for use are tested for impairment annually, and whenever there is an indication that they may be
impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount,
the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is
recognised as an expense immediately, unless the relevant asset is carried at a revalued amount
under another standard, in which case the impairment loss is treated as revaluation decrease under
that standard.
64

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to
the revised estimate of its recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss been
recognised for the asset in prior years. A reversal of an impairment loss is recognised as income
immediately, unless the relevant asset is carried at a revalued amount under another standard, in
which case the reversal of the impairment loss is treated as revaluation increase under that
standard.
HKAS 2.36(a) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the
first-in, first-out method.
HKFRS 7.21 Financial instruments
Financial assets and financial liabilities are recognised on the balance sheet when a group entity
becomes a party to the contractual provisions of the instrument. Financial assets and financial
liabilities are initially measured at fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities (other than financial assets and
financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of
the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial liabilities at fair value through
profit or loss are recognised immediately in profit or loss.
HKFRS 7.B5(c),(g) Financial assets

HKFRS 7.28(a)
The Group’s financial assets are classified into one of the four categories, including financial assets
at fair value through profit or loss (“FVTPL”), loans and receivables, held-to-maturity investments
and available-for-sale financial assets. All regular way purchases or sales of financial assets are
recognised and derecognised on a trade date basis. Regular way purchases or sales are
purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or convention in the marketplace.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset and
of allocating interest income over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts (including all fees and points paid or received that
form an integral part of the effective interest rate, transaction costs and other premiums or
discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.
Income is recognised on an effective interest basis for debt instruments other than those financial
assets designated as at FVTPL, of which interest income is included in net gains or losses.
HKFRS 7.B5(a) Financial assets at fair value through profit or loss
Financial assets at FVTPL has two subcategories, including financial assets held for trading and
those designated as at FVTPL on initial recognition.
A financial asset is classified as held for trading if:
• it has been acquired principally for the purpose of selling in the near future; or
• it is a part of an identified portfolio of financial instruments that the Group manages together
and has a recent actual pattern of short-term profit-taking; or
• it is a derivative that is not designated and effective as a hedging instrument.
65

HKAS 39.9(b)(i) A financial asset other than a financial asset held for trading may be designated as at FVTPL upon
HKAS 39.9(b)(ii) initial recognition if:
HKAS 39.11A
HKAS 39.12 • such designation eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise; or
• the financial asset forms part of a group of financial assets or financial liabilities or both, which
is managed and its performance is evaluated on a fair value basis, in accordance with the
Group’s documented risk management or investment strategy, and information about the
grouping is provided internally on that basis; or
• it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits
the entire combined contract (asset or liability) to be designated as at FVTPL.
HKFRS 7.B5(e) At each balance sheet date subsequent to initial recognition, financial assets at FVTPL are
measured at fair value, with changes in fair value recognised directly in profit or loss in the period in
which they arise. The net gain or loss recognised in profit or loss includes any dividend or interest
earned on the financial assets.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. At each balance sheet date subsequent to initial recognition,
loans and receivables (including trade receivables, loan receivables, other receivables, pledged
bank deposits, bank balances and cash, amount due from directors and finance lease receivables)
are carried at amortised cost using the effective interest method, less any identified impairment
losses (see accounting policy in respect of impairment loss on financial assets below).
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable

payments and fixed maturities that the Group’s management has the positive intention and ability to
hold to maturity. The Group designated certain debt securities as held-to-maturity investments. At
each balance sheet date subsequent to initial recognition, held-to-maturity investments are
measured at amortised cost using the effective interest method, less any identified impairment
losses (see accounting policy in respect of impairment loss on financial assets below).
HKFRS 7.B5(b) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated or not classified as
financial assets at FVTPL, loans and receivables or held-to-maturity investments. In addition to
equity investments, the Group has also designated certain debt securities as available-for-sale
financial assets.
At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are
measured at fair value. Changes in fair value are recognised in equity, until the financial asset is
disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously
recognised in equity is removed from equity and recognised in profit or loss (see accounting policy
in respect of impairment loss on financial assets below).
For available-for-sale equity investments that do not have a quoted market price in an active market
and whose fair value cannot be reliably measured and derivatives that are linked to and must be
settled by delivery of such unquoted equity instruments, they are measured at cost less any
identified impairment losses at each balance sheet date subsequent to initial recognition (see
accounting policy in respect of impairment loss on financial assets below).
66

HKFRS 7.B5(f) Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each
balance sheet date. Financial assets are impaired where there is objective evidence that, as a
result of one or more events that occurred after the initial recognition of the financial asset, the
estimated future cash flows of the financial assets have been impacted.
For an available-for sale equity investment, a significant or prolonged decline in the fair value of that
investment below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include:
• significant financial difficulty of the issuer or counterparty; or
• default or delinquency in interest or principal payments; or
• it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to
be impaired individually are subsequently assessed for impairment on a collective basis. Objective
evidence of impairment for a portfolio of receivables could include the Group’s past experience of
collecting payments, an increase in the number of delayed payments in the portfolio past the
average credit period of 60 days, observable changes in national or local economic conditions that
correlate with default on receivables.
For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss
when there is objective evidence that the asset is impaired, and is measured as the difference
between the asset’s carrying amount and the present value of the estimated future cash flows
discounted at the original effective interest rate.
For financial assets carried at cost, the amount of the impairment loss is measured as the difference
between the asset’s carrying amount and the present value of the estimated future cash flows
discounted at the current market rate of return for a similar financial asset. Such impairment loss
will not be reversed in subsequent periods.
HKFRS 7.B5(d) The carrying amount of the financial asset is reduced by the impairment loss directly for all financial
assets with the exception of trade receivables, where the carrying amount is reduced through the
use of an allowance account. Changes in the carrying amount of the allowance account are
recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off
against the allowance account. Subsequent recoveries of amounts previously written off are
credited to profit or loss.
For financial assets measured at amortised cost, if, in a subsequent period, the amount of
impairment loss decreases and the decrease can be related objectively to an event occurring after
the impairment losses was recognised, the previously recognised impairment loss is reversed
through profit or loss to the extent that the carrying amount of the asset at the date the impairment
is reversed does not exceed what the amortised cost would have been had the impairment not been
recognised.
Impairment losses on available-for-sale equity investments will not be reversed in profit or loss in
subsequent periods. Any increase in fair value subsequent to impairment loss is recognised directly
in equity. For available-for-sale debt investments, impairment losses are subsequently reversed if
an increase in the fair value of the investment can be objectively related to an event occurring after
the recognition of the impairment loss.
67

Financial liabilities and equity
Financial liabilities and equity instruments issued by a group entity are classified according to the
substance of the contractual arrangements entered into and the definitions of a financial liability and
an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the group
after deducting all of its liabilities. The Group’s financial liabilities are generally classified into
financial liabilities at FVTPL and other financial liabilities.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial liability and
of allocating interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments through the expected life of the financial liability,
or, where appropriate, a shorter period.
Interest expense is recognised on an effective interest basis other than those financial liabilities
designated as at FVTPL, of which the interest expense is included in net gains or losses.
Financial liabilities at fair value through profit or loss
Financial liabilities at FVTPL has two subcategories, including financial liabilities held for trading and
those designated as at FVTPL on initial recognition.
A financial liability is classified as held for trading if:
• it has been incurred principally for the purpose of repurchasing in the near future; or
• it is a part of an identified portfolio of financial instruments that the Group manages together
and has a recent actual pattern of short-term profit-taking; or
• it is a derivative that is not designated and effective as a hedging instrument.
HKAS 39.9(b)(i) A financial liability other than a financial liability held for trading may be designated as at FVTPL
HKAS 39.9(b)(ii) upon initial recognition if:
HKAS 39.11A
HKAS 39.12 • such designation eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise; or
• the financial liability forms part of a group of financial assets or financial liabilities or both, which
is managed and its performance is evaluated on a fair value basis, in accordance with the
Group’s documented risk management or investment strategy, and information about the
grouping is provided internally on that basis; or
• it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits
the entire combined contract (asset or liability) to be designated as at FVTPL.
At each balance sheet date subsequent to initial recognition, financial liabilities at FVTPL are
measured at fair value, with changes in fair value recognised directly in profit or loss in the period in
which they arise. The net gain or loss recognised in profit or loss includes any interest paid on the
financial liability.
Other financial liabilities
Other financial liabilities (including bank and other borrowings, trade payables and other payables)
are subsequently measured at amortised cost, using the effective interest method.
68

Convertible loan notes
Convertible loan notes issued by the Company that contain both the liability and conversion option
components are classified separately into respective items on initial recognition. Conversion option
that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed
number of the Company’s own equity instruments is an equity instrument.
On initial recognition, the fair value of the liability component is determined using the prevailing
market interest rate of similar non-convertible debts. The difference between the gross proceeds of
the issue of the convertible loan notes and the fair value assigned to the liability component,
representing the conversion option for the holder to convert the loan notes into equity, is included in
equity (convertible loan notes equity reserve).
In subsequent periods, the liability component of the convertible loan notes is carried at amortised
cost using the effective interest method. The equity component, representing the option to convert
the liability component into ordinary shares of the Company, will remain in convertible loan notes
equity reserve until the conversion option is exercised (in which case the balance stated in
convertible loan notes equity reserve will be transferred to share premium). Where the option
remains unexercised at the expiry date, the balance stated in convertible loan notes equity reserve
will be released to retained profits. No gain or loss is recognised in profit or loss upon conversion or
expiration of the option.
Transaction costs that relate to the issue of the convertible loan notes are allocated to the liability
and equity components in proportion to the allocation of the gross proceeds. Transaction costs
relating to the equity component are charged directly to equity. Transaction costs relating to the
liability component are included in the carrying amount of the liability component and amortised
over the period of the convertible loan notes using the effective interest method.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct
issue costs.
Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity.
No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the
Company’s own equity instruments.
Derivative financial instruments and hedging
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and
are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or
loss is recognised in profit or loss immediately unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the recognition in profit or loss depends on the
nature of the hedge relationship.
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when
their risks and characteristics are not closely related to those of the host contracts and the host
contracts are not measured at fair value with changes in fair value recognised in profit or loss.
69

Hedge accounting
The Group designates certain derivatives as either hedges of the fair value of fixed-rate bank
borrowings (fair value hedges), hedges of highly probable forecast transactions for foreign currency
exposure (cash flow hedges), or hedges of net investments in foreign operations.
At the inception of the hedge relationship the entity documents the relationship between the
hedging instrument and hedged item, along with its risk management objectives and its strategy for
undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an
ongoing basis, the Group documents whether the hedging instrument that is used in a hedging
relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are
recorded in profit or loss immediately, together with any changes in the fair value of the hedged item
that is attributable to the hedged risk. The adjustment to the carrying amount of the hedged item for
which the effective interest is used is amortised to profit or loss as soon as an adjustment exists.
The adjustment is based on a recalculated effective interest rate at the date the amortisation
begins.
Hedge accounting is discontinued when the Group revokes the hedge relationship, the hedging
instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as
cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is
recognised immediately in profit or loss as other gains or losses.
Amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is
recognised in profit or loss. However, when the forecast transaction that is hedged results in the
recognition of a non-financial asset or a non-financial liability, the gains and losses previously
deferred in equity are transferred from equity and included in the initial measurement of the cost of
the asset or liability.
Hedge accounting is discontinued when the Group revokes the hedge relationship, the hedging
instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting.
Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when
the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no
longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised
immediately in profit or loss.
Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is
recognised in equity in the translation reserve. The gain or loss relating to the ineffective portion is
recognised immediately in profit or loss as other gains or losses.
Gains and losses deferred in the translation reserve are recognised in profit or loss on disposal of
the foreign operation.
70

Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due
in accordance with the original or modified terms of a debt instrument. A financial guarantee
contract issued by the Group and not designated as at fair value through profit or loss is recognised
initially at its fair value less transaction costs that are directly attributable to the issue of the financial
guarantee contract. Subsequent to initial recognition, the Group measures the financial guarantee
contact at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions,
Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, when
appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue.
Derecognition
Financial assets are derecognised when the rights to receive cash flows from the assets expire or,
the financial assets are transferred and the Group has transferred substantially all the risks and
rewards of ownership of the financial assets. On derecognition of a financial asset, the difference
between the asset’s carrying amount and the sum of the consideration received and receivable and
the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.
If the Group retains substantially all the risks and rewards of ownership of a transferred financial
asset, the Group continues to recognise the financial asset and also recognises a collateralised
borrowing for the proceeds received.
Financial liabilities are derecognised when the obligation specified in the relevant contract is
discharged, cancelled or expires. The difference between the carrying amount of the financial
liability derecognised and the consideration paid and payable is recognised in profit or loss.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and
it is probable that the Group will be required to settle that obligation. Provisions are measured at
the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet
date, and are discounted to present value where the effect is material.
Contingent liabilities acquired in a business combination
Contingent liabilities acquired in a business combination are initially measured at fair value at the
date of acquisition. At subsequent balance sheet date, such contingent liabilities are measured at
the higher of the amount that would be recognised in accordance with HKAS 37 Provisions,
Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative
amortisation (if appropriate).
Contingent assets
Contingent assets are not recognised. If, in subsequent periods, it has become virtually certain that
an inflow of economic benefits will arise, the asset and income are recognised in the period in which
the change occurs.
71

LR 17.08 Share-based payment transactions

GR 23.08
Equity-settled share-based payment transactions
Share options granted to employees
For grants of share options which are conditional upon satisfying specified vesting conditions, the
fair value of services received determined by reference to the fair value of share options granted at
the grant date is expensed on a straight-line basis over the vesting period, with a corresponding
increase in equity (share options reserve). The impact of the revision of the original estimates
during the vesting period, if any, is recognised in profit or loss with a corresponding adjustment to
share options reserve.
For share options which are vested at the date of grant, the fair value of the share options granted
is expensed immediately to profit or loss.
At the time when the share options are exercised, the amount previously recognised in share
options reserve will be transferred to share premium. When the share options are forfeited after the
vesting date or are still not exercised at the expiry date, the amount previously recognised in share
options reserve will be transferred to retained profits.
Share options granted to suppliers
For share options granted to suppliers in exchange for goods or services, they are measured at the
fair value of the goods or services received. The fair values of the goods or services are recognised
as expenses immediately, unless the goods or services qualify for recognition as assets.
Corresponding adjustments have been made to equity (share options reserve).
Cash-settled share-based payment transactions
For cash-settled share-based payments, the Group measures the goods or services acquired and
the liability incurred at the fair value of the liability. At each balance sheet date, the liability is
remeasured at its fair value until the liability is settled, with any changes in fair value recognised in
profit or loss.
72

4. Critical accounting judgments and key sources of estimation uncertainty
Note: The following are examples of the types of disclosures that might be required in this area.
The matters disclosed will be dictated by the circumstances of the individual entity, and by
the significance of judgements and estimates made to the results and financial position of
the entity.
In the application of the Group’s accounting policies, which are described in note 3, management is
required to make judgements, estimates and assumptions about the carrying amounts of assets
and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and future periods if the revision affects both
current and future periods.
HKAS 1.113 Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations (see below), that
management has made in the process of applying the Group’s accounting policies and that have
the most significant effect on the amounts recognised in consolidated financial statements.
Revenue recognition
Note 13 describes the expenditure required in the year for rectification work carried out on goods
supplied to one of the Group’s major customers. These goods were delivered to the customer in
the months of January to July 2008, and shortly thereafter the defects were identified by the
customer. Following negotiations, a schedule of works was agreed, which will involve expenditure
by the Group until 2010. In the light of the problems identified, management was required to
consider whether it was appropriate to recognise the revenue from these transactions of HK$39
million in the current year, in line with the Group’s general policy of recognising revenue when
goods are delivered, or whether it was more appropriate to defer recognition until the rectification
work was complete.
In making its judgement, management considered the detailed criteria for the recognition of revenue
from the sale of goods set out in HKAS 18 Revenue and, in particular, whether the Group had
transferred to the buyer the significant risks and rewards of ownership of the goods. Following the
detailed quantification of the Group’s liability in respect of rectification work, and the agreed
limitation on the customer’s ability to require further work or to require replacement of the goods,
the directors are satisfied that the significant risks and rewards have been transferred and that
recognition of the revenue in the current year is appropriate, in conjunction with recognition of an
appropriate provision for the rectification costs.
73

HKAS 1.116 Key sources of estimation uncertainty

HKAS 1.120
The following are the key assumptions concerning the future, and other key sources of estimation
uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial year.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-
generating units to which goodwill has been allocated. The value in use calculation requires the
entity to estimate the future cash flows expected to arise from the cash-generating unit and a
suitable discount rate in order to calculate present value.
The carrying amount of goodwill at the balance sheet date was HK$20.3 million (2007: HK$24.1
million) after an impairment loss of HK$15,000 (2007: nil) was recognised during 2008. Details of
the impairment loss calculation are provided in note 22.
Fair value of derivatives and other financial instruments
As described in notes 27 and 30, the directors use their judgement in selecting an appropriate
valuation technique for financial instruments not quoted in an active market. Valuation techniques
commonly used by market practitioners are applied. The Group's unlisted equity instruments with
carrying amount of HK$2.74 million (2007: HK$2.70 million) are valued using a discounted cash
flow analysis based on assumptions supported, where possible, by observable market prices or
rates. The estimation of fair value of these equity instruments also includes some assumptions not
supported by observable market prices or rates.
For derivative financial instruments, assumptions are made based on quoted market rates adjusted
for specific features of the instrument. The carrying amounts of these derivatives financial assets
and derivative financial liabilities are HK$528,000 and HK$98,000 (2007: HK$397,000 and nil)
respectively.
74

5. Revenue
HKAS 18.35(b) An analysis of the Group’s revenue for the year, for both continuing and discontinued operations, is
Sch 10:16(4) as follows:
2008 2007
HK$’000 HK$’000
HKAS 18.35(b) Revenue from sales of goods 140,469 151,035

HKAS 18.35(b) Revenue from rendering of services 449 805
_______ _______
140,918 151,840
_______ _______
HKAS 18.35(b) Revenue from sales of goods 35,655 49,944

HKAS 11.39(a) Construction contract revenue 28,750 27,899
_______ _______
64,405 77,843
_______ _______
Sch 10:16(2) 205,323 229,683

_______ _______
App 16.7 6. Business and geographical segments

GR 18.08
HKAS 14.81 Business segments
HKAS 1.126(b)
For management purposes, the Group is currently organised into four operating divisions – widgets,
bicycles, construction and toys. These divisions are the basis on which the Group reports its
primary segment information.
Principal activities are as follows:
Widgets the manufacture and sale of widgets.
Toys the manufacture and sale of toys.
Bicycles the manufacture of bicycles including leisure bicycles, mountain bicycles and
children’s bicycles.
Construction the construction and renovation of residential properties.
Other operations include the development and sale of computer software for specialised business
applications, and the leasing out of specialised storage equipment.
During the financial year, the Group disposed of its bicycle business and the Board of Directors
announced a plan to dispose of the construction business (see note 11).
Segment information about these businesses is presented below.
75

2008
Continuing operations Discontinued operations
Widgets Toys Other Eliminations Total Bicycles Construction Total Consolidated
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
REVENUE
HKAS 14.51 External sales 75,949 63,455 1,514 - 140,918 35,515 28,890 64,405 205,323
Inter-segment sales 2,515 806 - (3,321) - - - - -
_______ _______ _______ _______ _______ _______ _______ _______ _______
HKAS 14.67 Total 78,464 64,261 1,514 (3,321) 140,918 35,515 28,890 64,405 205,323
_______ _______ _______ _______ _______ _______ _______ _______ _______
HKAS 14.75 Inter-segment sales are charged at prevailing market rates.
RESULT
HKAS 14.52 Segment result 29,123 9,942 1,011 - 40,076 5,474 4,206 9,680 49,756
_______ _______ _______ _______ _______ _______
Unallocated income 4,542 1,940 6,482

Unallocated corporate
expenses (15,088) (150) (15,238)
HKAS 14.64 Share of profits
of associates 1,186 - 1,186
_______ _______ _______
Profit before tax 30,716 11,470 42,186

Income tax expense (11,650) (3,160) (14,810)
_______ _______ _______
HKAS 14.67 Profit for the year 19,066 8,310 27,376

_______ _______ _______
BALANCE SHEET
Widgets Bicycles Construction Toys Other Consolidated

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
ASSETS
Segment assets 98,750 - 20,901 72,513 8,346 200,510
HKAS 14.55 Interests in associates 8,425
HKAS 14.66 Unallocated corporate assets 55,237
_______
HKAS 14.67 Consolidated total assets 264,172

______
LIABILITIES
HKAS 14.56 Segment liabilities 10,003 - 3,254 7,135 220 20,612
Unallocated corporate liabilities 72,520
_______
HKAS 14.67 Consolidated total liabilities 93,132

______
OTHER INFORMATION

Widgets Toys Other Total Bicycles Construction Total Consolidated
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
HKAS 14.57 Capital additions 13,287 7,752 435 21,474 - 4,274 4,274 25,748
HKAS 14.58 Depreciation and
amortisation 7,275 5,137 - 12,412 477 1,290 1,767 14,179
HKAS 36.130 Impairment losses on
property, plant and
equipment 1,204 - - 1,204 - - - 1,204
goodwill - 15 - 15 - - - 15
receivables 40 - - 40 - - - 40
HKAS 14.61 Write-down of inventories - - - - - - - -
76

2007
Widgets Toys Other Eliminations Total Bicycles Construction Total Consolidated
REVENUE
HKAS 14.51 External sales 79,895 69,542 2,403 - 151,840 49,153 28,690 77,843 229,683
Inter-segment sales 1,872 650 - (2,522) - - - - -
_______ _______ _______ _______ _______ _______ _______ _______ _______
HKAS 14.67 Total 81,767 70,192 2,403 (2,522) 151,840 49,153 28,690 77,843 229,683
_______ _______ _______ _______ _______ _______ _______ _______ _______
HKAS 14.75 Inter-segment sales are charged at prevailing market rates.
HKAS 14.52 RESULT

Segment result 29,640 10,343 984 - 40,967 9,636 3,491 13,127 54,094
_______ _______ _______ _______ _______ _______
Unallocated income 3,356 - 3,356

Unallocated corporate
expenses (13,774) (134) (13,908)
HKAS 14.64 Share of profits of
associates 1,589 - 1,589
_______ _______ _______
Profit before tax 32,138 12,993 45,131

Income tax expense (11,801) (2,998) (14,799)
_______ _______ _______
HKAS 14.67 Profit for the year 20,337 9,995 30,332

_______ _______ _______
BALANCE SHEET
Widgets Bicycles Construction Toys Other Consolidated

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
ASSETS
Segment assets 98,034 10,012 20,012 70,658 7,970 206,686
HKAS 14.55 Interests in associates 7,269
HKAS 14.66 Unallocated corporate assets 48,197
_______
HKAS 14.67 Consolidated total assets 262,152

______
LIABILITIES
HKAS 14.56 Segment liabilities 11,662 955 2,552 6,105 214 21,488
Unallocated corporate liabilities 73,625
_______
HKAS 14.67 Consolidated total liabilities 95,113

______
OTHER INFORMATION

Widgets Toys Other Total Bicycles Construction Total Consolidated
HKAS 14.57 Capital additions 6,952 3,483 - 10,435 325 1,500 1,825 12,260
HKAS 14.58 Depreciation and
amortisation 7,587 6,291 - 13,878 736 2,736 3,472 17,350
property, plant and
equipment - - - - - - - -
goodwill - - - - - - - -
HKAS 36.130 Impairment losses on trade
receivables 310 110 - 420 - - - 420
HKAS 14.61 Write-down of inventories - - - - - - - -
77

HKAS 14.81 Geographical segments
The Group’s four divisions operate in three principal geographical areas – the Peoples’ Republic of
China (excluding Hong Kong) (the “PRC”), Hong Kong and Malaysia. The following table provides
an analysis of the Group’s sales by geographical markets, irrespective of the origin of the goods
and services:
HKAS 14.69(a) Revenue from

external customers
2008 2007
HK$’000 HK$’000
PRC 136,607 151,814

Hong Kong 35,898 43,562
Malaysia 25,485 25,687
European countries 7,333 8,620
_______ _______
205,323 229,683
_______ _______
Revenue from the Group’s discontinued operations was derived mainly from the PRC and Hong
Kong.
HKAS 14.69(b),(c) The following is an analysis of the carrying amount of segment assets, and additions to property,
plant and equipment and intangible assets, analysed by the geographical area in which the assets
are located:
Additions to property,
Carrying amount of plant and equipment
segment assets and intangible assets
2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000
PRC 139,132 147,799 12,598 6,748

Hong Kong 39,256 36,428 8,643 2,888
Malaysia 21,684 22,009 4,507 2,624
European countries 438 450 - -
_______ _______ _______ _______
200,510 206,686 25,748 12,260

_______ _______ _______ _______
78

7. Investment and other income
Continuing Discontinued
operations operations Consolidated
2008 2007 2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
HKAS 18.35(b)(iii) Interest income on:

Bank deposits 1,650 741 - - 1,650 741
Available-for-sale investments 154 148 - - 154 148
Other loans and receivables 66 5 - - 66 5
Held-to-maturity investments 445 410 - - 445 410
______ ______ ______ ______ ______ ______
Total Interest income 2,315 1,304 - - 2,315 1,304
HKAS 18.35(b)(iv) Royalties 579 428 - - 579 428

HKAS 18.35(b)(v) Dividends from equity securities 156 154 - - 156 154
HKAS 20.39(b) Government grant received for
staff re-training 731 979 - - 731 979
Other 558 465 - - 558 465
______ ______ ______ ______ ______ ______
4,339 3,330 - - 4,339 3,330

______ ______ ______ ______ ______ ______
Sch 10:13(1)(g) Included above is income from listed investments of HK$471,000 (2007: HK$444,000) and from
unlisted investments of HK$284,000 (2007: HK$268,000).
Investment and other income analysed by category of asset is as follows:
2008 2007 2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Available-for-sale
financial assets 310 302 - - 310 302
Loans and receivables
(including cash and
bank balances) 1,716 746 - - 1,716 746
Held-to-maturity investments 445 410 - - 445 410
Non-financial assets 1,868 1,872 - - 1,868 1,872
______ ______ ______ ______ ______ ______
4,339 3,330 - - 4,339 3,330

______ ______ ______ ______ ______ ______
Revenue recognised in respect of financial assets designated as at fair value through profit or loss
is disclosed in note 8.
79

8. Other gains and losses
2008 2007 2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
HKAS 16.68 Gain on disposal of property,

plant and equipment 6 67 - - 6 67
HKAS 21.52(a) Net foreign exchange gains/(loss) 122 (127) 30 49 152 (78)
HKFRS 7.20(a) Change in fair value of financial
assets designated as at FVTPL - - - - - -
assets classified as held for
trading (8) 10 - - (8) 10
liabilities designated as at FVTPL - - - - - -
liabilities classified as held for
trading - - - - - -
HKAS 40.76(d) Change in fair value of investment
property (6) 8 - - (6) 8
HKFRS 7.20(a) Recycling of gain/(loss) from equity
on disposal of available-for-sale
investments - - - - - -
HKFRS 7.24(b) Hedge ineffectiveness on cash
flow hedges 89 68 - - 89 68
HKFRS 7.24(c) Hedge ineffectiveness on net
investment hedges - - - - - -
Impairment loss recognised in
respect of property, plant and
equipment 1,204 - - - 1,204 -
Impairment loss recognised in
respect of goodwill 15 - - - 15 -
HKFRS 7.20(e) Impairment losses on financial
assets
- trade receivables 40 420 - - 40 420
- available-for-sale equity
investments - - - - - -
- available-for-sale debt invesments - - - - - -
- held-to-maturity financial assets - - - - - -
- loans carried at amortised cost - - - - - -
______ ______ ______ ______ ______ ______
1,462 446 30 49 1,492 495

______ ______ ______ ______ ______ ______
80

9. Finance costs
2008 2007 2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Sch 10:13(1)(b) Interest on:
Bank and other borrowings
- wholly repayable within
five years 4,171 5,225 150 134 4,321 5,359
- not wholly repayable
within five years 721 801 - - 721 801
Finance leases 15 24 - - 15 24
Effective interest expense on
convertible loan notes 110 - - - 110 -
Unwinding of discounts on
provisions 28 - - - 28 -
Imputed interest expense on
non-current interest-free
loan from the immediate
holding company - - - - - -
______ ______ ______ ______ ______ ______
HKFRS 7.20(b) Total borrowing costs 5,045 6,050 150 134 5,195 6,184
HKAS 23.29(b) Less: amounts capitalised (11) (27) - - (11) (27)
App 16.22(2) ______ ______ ______ ______ ______ ______
GR 18.22
5,034 6,023 150 134 5,184 6,157
______ ______ ______ ______ ______ ______
HKFRS 7.24(a)(i) Increase in fair value of

interest rate swaps (35) (27) - - (35) (27)
HKFRS 7.24(a)(ii) Decrease in fair value of
fixed-rate borrowings
attributable to hedged risk 35 27 - - 35 27
______ ______ ______ ______ ______ ______
- - - - - -
______ ______ ______ ______ ______ ______
5,034 6,023 150 134 5,184 6,157

______ ______ ______ ______ ______ ______
HKAS 23.29(c) Borrowing costs capitalised during the year arose on the general borrowing pool and are calculated
by applying a capitalisation rate of 8% (2007: 7.8%) per annum to expenditure on qualifying assets.
81

10. Income tax expense
HKAS 12.79 Continuing Discontinued

Sch 10:13(1)(c) operations operations Consolidated
2008 2007 2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Current tax:
Hong Kong 1,524 998 360 730 1,884 1,728

PRC Enterprise Income Tax 8,523 7,926 2,796 2,258 11,319 10,184
Other jurisdictions 34 55 - - 34 55
______ ______ ______ ______ ______ ______
10,081 8,979 3,156 2,988 13,237 11,967

______ ______ ______ ______ ______ ______
(Over) under provision of current tax in prior years:
Hong Kong (300) - - - (300) -

PRC Enterprise Income Tax - 2,380 - - - 2,380
______ ______ ______ ______ ______ ______
(300) 2,380 - - (300) 2,380

______ ______ ______ ______ ______ ______
Deferred tax (note 29):

Current year 1,899 924 4 10 1,903 934
Attributable to a change
in tax rate (30) (482) - - (30) (482)
______ ______ ______ ______ ______ ______
1,869 442 4 10 1,873 452

______ ______ ______ ______ ______ ______
11,650 11,801 3,160 2,998 14,810 14,799

______ ______ ______ ______ ______ ______
Sch 10:17(3) On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 and reduced
corporate profit tax rate from 17.5% to 16.5% which is effective from the year of assessment
2008/2009. Hong Kong Profits Tax is calculated at 16.5% (2007: 17.5%) of the estimated
assessable profit for the year.
PRC subsidiaries are subject to PRC Enterprise Income Tax at 25% (2007: 30%). Taxation arising
in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.
On 16 March 2007, the People’s Republic of China promulgated the Law of the People’s Republic
of China on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the
People’s Republic of China. On 6 December 2007, the State Council issued Implementation
Regulation of the New Law. The New Law and Implementation Regulation changed the tax rate of
the PRC subsidiaries to 25% from 1 January 2008 onwards.
82

HKAS 12.81(c) The tax charge for the year can be reconciled to the profit per the consolidated income statement
as follows:
2008 2007
HK$’000 HK$’000
Profit before tax:

Continuing operations 30,716 32,138
Discontinued operations 11,470 12,993
_______ _______
42,186 45,131
_______ _______
Tax at PRC Enterprise Income Tax rate of 25% (2007: 30%) 10,547 13,539
Tax effect of share of profits of associates (297) (477)
Tax effect of expenses not deductible for tax purpose 5,186 1,260
Tax effect of income not taxable for tax purpose (86) (581)
(Over) under provision in respect of prior years (300) 2,380
Tax effect of [tax losses/deductible temporary differences]

not recognised - -
Utilisation of [tax losses/deductible temporary differences]

previously not recognised - -
Effect of different tax rates of group entities operating in

jurisdictions other than PRC (210) (840)
Decrease in opening deferred tax liability resulting from a

decrease in applicable tax rate (30) (482)
_______ _______
Tax charge for the year 14,810 14,799

_______ _______
83

11. Discontinued operations
Disposal of the bicycle business
HKFRS 5.30 On 28 September 2008, the Board of Directors entered into a sale agreement to dispose of the
HKFRS 5.41 Group’s bicycle business. The proceeds of sale substantially exceeded the carrying amount of the
related net assets and, accordingly, no impairment losses were recognised on the reclassification of
these operations as held for sale. The disposal of the bicycle business is consistent with the
Group’s long-term policy to focus its activities in the widget and toy manufacturing industries. The
disposal was completed on 30 November 2008, on which date control of the bicycle business
passed to the acquirer. Details of the assets and liabilities disposed of are disclosed in note 48.
Plan to dispose of the construction business
HKFRS 5.30 On 30 November 2008, the Board of Directors announced a plan to dispose of the Group’s
HKFRS 5.41 construction business, which involves the construction and renovation of residential properties in
Hong Kong. The disposal is consistent with the Group’s long-term policy to focus its activities in
the widget and toy manufacturing industries. The Group is actively seeking a buyer for its
construction business and expects to complete the sale by 31 July 2009. On initial reclassification
of these operations as held for sale, the Group has not recognised any impairment losses.
HKFRS 5.34 The combined results and cash flows of the discontinued operations (i.e. the bicycle and
construction businesses) included in the consolidated income statement and the consolidated cash
flow statement are set out below.
2008 2007
HK$’000 HK$’000
HKFRS 5.33(b) Profit for the year from discontinued operations

HKFRS 5.34 Revenue 64,405 77,843
Expenses (54,875) (64,850)
_______ _______
Profit before tax 9,530 12,993

HKAS 12.81(h) Income tax expense (2,675) (2,998)
HKFRS 5.33(b)(iv) _______ _______
6,855 9,995
_______ _______
HKFRS 5.33(b)(iii) Loss on remeasurement to fair value less costs to sell - -

Gain on disposal of operations (including HK$0.12 million
reversal of translation reserve on disposal of a subsidiary) 1,940 -
HKAS 12.81(h) Income tax expense (485) -
HKFRS 5.33(b)(iv) _______ _______
1,455 -
_______ _______
Profit for the year from discontinued operations 8,310 9,995

_______ _______
HKFRS 5.33(c) Cash flows from discontinued operations

Net cash flows from operating activities 6,381 7,078
Net cash flows from investing activities 2,767 -
Net cash flows from financing activities (5,000) -
_______ _______
Net cash flows 4,148 7,078

_______ _______
The construction business has been classified and accounted for at 31 December 2008 as a
disposal group held for sale (see note 12).
84

12. Non-current assets held for sale
2008 2007
HK$’000 HK$’000
Freehold land held for sale (Note 1) 1,260 -

Assets related to the construction business (Note 2) 21,076 -
_______ _______
22,336 -
_______ _______
Liabilities associated with assets held for sale (Note 2) 3,684 -

_______ _______
Notes:
HKFRS 5.41 1) The Group intends to dispose of a parcel of freehold land it no longer utilises in the next 10
months. The property located on the freehold land was previously used in the Group’s toy
operations and has been fully depreciated. A search is underway for a buyer. No
impairment loss was recognised on reclassification of the freehold land as held for sale as
at 31 December 2008.
HKFRS 5.41 2) As described in note 11, the Group is seeking to dispose of its construction business and
HKFRS 5.38 anticipates that the disposal will be completed by 31 July 2009. The major classes of
assets and liabilities comprising the operations classified as held for sale at the balance
sheet date are as follows:
2008 2007
HK$’000 HK$’000
Goodwill 1,147 -
Property, plant and equipment 16,944 -
HKAS 2.36(c) Inventories 830 -
Trade and other receivables 1,980 -
Bank balances and cash 175 -
_______ _______
Assets of construction business classified

as held for sale 21,076 -
_______ _______
Trade and other payables (3,254) -

Current tax liabilities - -
Deferred tax liabilities (430) -
_______ _______
Liabilities of construction business associated

with assets classified as held for sale (3,684) -
_______ _______
Net assets of construction business classified

as held for sale 17,392 -
_______ _______
85

13. Profit for the year
Profit for the year has been arrived at after charging (crediting):
2008 2007 2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Depreciation for property,

plant and equipment 10,820 12,322 1,767 3,472 12,587 15,794
HKAS 38.118(d) Amortisation of other intangible

assets (included in [cost of sales/
depreciation and amortisation
expense/ administrative expenses/
other expenses]) 1,592 1,556 - - 1,592 1,556
______ ______ ______ ______ ______ ______
Sch 10:13(1)(a) Total depreciation and amortisation 12,412 13,878 1,767 3,472 14,179 17,350
______ ______ ______ ______ ______ ______
Sch 10:15 Auditor’s remuneration 2,000 1,850 150 130 2,150 1,980
______ ______ ______ ______ ______ ______
HKAS 38.126 Research and development costs 602 540 - - 602 540
______ ______ ______ ______ ______ ______
HKAS 40.75(f) Gross rental income from

investment properties (11) (16) - - (11) (16)
Less:
Direct operating expenses from
investment properties that
generated rental income during
the year 1 2 - - 1 2
Direct operating expenses

from investment properties
that did not generate rental
income during the year - - - - - -
______ ______ ______ ______ ______ ______
(10) (14) - - (10) (14)

______ ______ ______ ______ ______ ______
86

Profit for the year has been arrived at after charging (crediting):
2008 2007 2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
HKAS 1.93 Employee benefits expense:
Post employment benefits

HKAS 19.46 Defined contribution plans 146 120 14 28 160 148
HKAS 19.120A(g) Defined benefit plans 586 556 - - 586 556
______ ______ ______ ______ ______ ______
732 676 14 28 746 704

______ ______ ______ ______ ______ ______
HKFRS 2.50 Share-based payments

HKFRS 2.51(a) Equity-settled share-based
payments 218 746 - - 218 746
HKFRS 2.51(a) Cash-settled share-based
payments - - - - - -
______ ______ ______ ______ ______ ______
218 746 - - 218 746

______ ______ ______ ______ ______ ______
HKAS 19.142 Termination benefits - - - - - -

Other employee benefits 8,853 10,275 4,561 3,756 13,414 14,031
______ ______ ______ ______ ______ ______
9,803 11,697 4,575 3,784 14,378 15,481

______ ______ ______ ______ ______ ______
HKAS 2.36(d) Cost of inventories recognised

as an expense 86,780 90,100 34,118 43,120 120,898 133,220
______ ______ ______ ______ ______ ______
HKAS 1.86 Costs of HK$4.17 million (2007: nil) have been recognised during the year in respect of rectification
work to be carried out on goods supplied to one of the Group’s major customers, which have been
included in [cost of sales/cost of inventories and employee benefits expense]. The amount
represents the estimated cost of work to be carried out in accordance with an agreed schedule of
works up to 2010. HK$1.112 million of the provision has been utilised in the current year, with a
provision of HK$3.058 million carried forward to meet anticipated expenditure in 2009 and 2010
(see note 41).
87

s161 14. Directors’ emoluments

s161A
App 16.24 The emoluments paid or payable to each of the six (2007: six) directors were as follows:
GR 18.28
Gary Daniel Derek Tiara Florence John Total
D.K. Wong D.D. Lee S.Y. Wong Cheung K.Y. Tang Banks 2008
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
2008
Fees - - - 100 100 100 300
Other emoluments
Salaries and other benefits 600 200 200 - - - 1,000
Contributions to retirement
benefits schemes 5 5 5 - - - 15
Share-based payments 60 60 - - - - 120
Discretionary and performance
related incentive payments
(Note) 80 70 70 - - - 220
______ ______ ______ ______ ______ ______ ______
Total emoluments 745 335 275 100 100 100 1,655

______ ______ ______ ______ ______ ______ ______
Gary Daniel Derek Tiara Florence John Total

D.K. Wong D.D. Lee S.Y. Wong Cheung K.Y. Tang Banks 2007
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
2007
Fees - - - 100 100 100 300
Other emoluments:
Salaries and other benefits 580 150 150 - - - 880
Contributions to retirement
benefits schemes 5 5 5 - - - 15
Share-based payments 160 35 - - - - 195
Discretionary and performance
related incentive payments
(Note) - 100 90 - - - 190
______ ______ ______ ______ ______ ______ ______
Total emoluments 745 290 245 100 100 100 1,580

______ ______ ______ ______ ______ ______ ______
Note: The performance related incentive payment is determined by reference to the individual
performance of the directors and approved by the Remuneration Committee.
88

App 16.25 15. Employees’ emoluments

GR 18.30
Of the five individuals with the highest emoluments in the Group, three (2007: three) were directors
of the Company whose emoluments are included in the disclosures in note 14 above. The
emoluments of the remaining two (2007: two) individuals were as follows:
2008 2007
HK$’000 HK$’000
Salaries and other benefits 200 180

Contributions to retirement benefits schemes 5 10
Share-based payment expense 55 40
Discretionary and performance related incentive payments - -
_______ ______
260 230
_______ _______
Their emoluments were all within HK$1,000,000 to HK$2,000,000.
HKAS 1.95 16. Dividends

Sch 10:13(1)(j)
2008 2007
HK$’000 HK$’000
Dividends recognised as distributions during the year:

Interim, paid - HK10.00 cents per share
(2007: nil) 2,300 -
Final, paid - HK18.84 cents per share
(2007: HK28.16 cents) 4,335 6,479
_______ _______
6,635 6,479
_______ _______
HKAS 1.125(a) Subsequent to the balance sheet date, the final dividend of HK26.31 cents (2007: HK18.84 cents)
HKAS 10.13 per share has been proposed by the directors and is subject to approval by the shareholders in the
forthcoming general meeting.
89

HKAS 33.70 17. Earnings per share
Note: HKAS 33 Earnings per Share, requires that earnings per share (EPS) information be
presented by entities whose ordinary shares or potential ordinary shares are publicly
traded, or by entities that are in the process of issuing ordinary shares or potential ordinary
shares in public securities markets. If other entities choose to disclose EPS information
voluntarily in financial statements that comply with HKFRSs, such disclosures should
comply fully with the requirements of HKAS 33.
From continuing and discontinued operations
The calculation of the basic and diluted earnings per share attributable to the ordinary equity
holders of the Company is based on the following data:
2008 2007
HK$’000 HK$’000
HKAS 33.70(a) Earnings
Earnings for the purpose of basic earnings per share

(profit for the year attributable to equity holders of the Company) 23,376 27,569
Effect of dilutive potential ordinary shares:
Interest on convertible loan notes (net of tax) 83 -
Adjustment to the share of profit of a subsidiary based on
dilution of its earnings per share (66) (56)
_______ _______
Earnings for the purpose of diluted earnings per share 23,393 27,513
_______ _______
HKAS 33.70(b) Number of shares
2008 2007
’000 ’000
Weighted average number of ordinary shares for the purpose

of basic earnings per share 22,450 23,005

Share options issued by the Company 193 91
Convertible loan notes 1,203 -
________ ________
Weighted average number of ordinary shares
for the purpose of diluted earnings per share 23,846 23,096
________ ________
90

The calculation of the basic and diluted earnings per share from continuing operations attributable
to the ordinary equity holders of the Company is based on the following data:
HKAS 33.70(a) Earnings figures are calculated as follows:

2008 2007
HK$’000 HK$’000
Profit for the year attributable to equity holders of the Company 23,376 27,569
Less:
Profit for the year from discontinued operations (8,310) (9,995)
_______ _______
Earnings for the purpose of basic earnings per share
from continuing operations 15,066 17,574

Interest on convertible loan notes (net of tax) 83 -
Adjustment to the share of profit of a subsidiary based on
dilution of its earnings per share (66) (56)
_______ _______
Earnings for the purpose of diluted earnings per share
from continuing operations 15,083 17,518
_______ _______
HKAS 33.70(b) The denominators used are the same as those detailed above for both basic and diluted earnings
per share.
HKAS 33.68 From discontinued operations
Basic earnings per share for the discontinued operations is HK37.02 cents per share (2007:
HK43.45 cents per share) and diluted earnings per share for the discontinued operations is
HK34.85 cents per share (2007: HK43.28 cents per share), based on the profit for the year from the
discontinued operations of HK$8.310 million (2007: HK$9.995 million) and the denominators
detailed above for both basic and diluted earnings per share.
91

18. Property, plant and equipment
Freehold Leasehold Plant and

land Buildings improvements equipment Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
HKAS 16.73(d)(e) COST OR VALUATION

HKAS 16.74(b) At 1 January 2007 14,871 10,056 306 157,164 182,397
Sch 10:12(8) Exchange adjustments - 2 - - 2
Additions - 1,205 - 10,697 11,902
Surplus on revaluation 2,097 35 - - 2,132
Disposals - - - (27,286) (27,286)
_______ _______ _______ _______ _______
At 31 December 2007 16,968 11,298 306 140,575 169,147

_______ _______ _______ _______ _______
Exchange adjustments - - - - -
Additions - 1,610 - 23,243 24,853
Acquired on acquisition of
subsidiaries - - - 454 454
Deficit on revaluation (610) - - - (610)
Reclassified as held for sale (1,260) (1,357) - (22,045) (24,662)
Disposals (1,530) (1,184) (16) (19,771) (22,501)
_______ _______ _______ _______ _______
At 31 December 2008 13,568 10,367 290 122,456 146,681

_______ _______ _______ _______ _______
HKAS 16.73(a) Comprising
At cost - - 290 122,456 122,746
At valuation 2008 13,568 10,367 - - 23,935
_______ _______ _______ _______ _______
13,568 10,367 290 122,456 146,681

_______ _______ _______ _______ _______
DEPRECIATION AND IMPAIRMENT

At 1 January 2007 - (1,521) (30) (25,397) (26,948)
Exchange adjustments - (2) - - (2)
Provided for the year - (892) (55) (14,847) (15,794)
Eliminated on revaluation - - - - -
Eliminated on disposals - - - 5,058 5,058
_______ _______ _______ _______ _______
At 31 December 2007 - (2,415) (85) (35,186) (37,686)

_______ _______ _______ _______ _______
Provided for the year - (721) (53) (11,813) (12,587)
HKAS 36.126(a) Impairment loss recognised - - - (1,204) (1,204)
Reclassified as held for sale - 153 - 6,305 6,458
Eliminated on disposals - 102 4 6,467 6,573
_______ _______ _______ _______ _______
At 31 December 2008 - (2,881) (134) (35,431) (38,446)

_______ _______ _______ _______ _______
CARRYING AMOUNTS
At 31 December 2008 13,568 7,486 156 87,025 108,235
_______ _______ _______ _______ _______
At 31 December 2007 16,968 8,883 221 105,389 131,461

_______ _______ _______ _______ _______
92

HKAS 16.73(c) The above items of property, plant and equipment are depreciated on a straight-line basis at the
following rates per annum:
Buildings Over the shorter of the term of the lease, or 20-30 years
Leasehold improvements 15-20%
Plant and equipment 7-20%
HKAS 36.130 During the year, the Group carried out a review of the recoverable amount of its manufacturing
(a) to (g) plant and equipment used in the Group's widget segment, having regard to its ongoing programme
of modernisation and the introduction of new product lines. The review led to the recognition of an
impairment loss of HK$1.09 million (2007: nil), that has been recognised in profit or loss. The
recoverable amount of the relevant assets has been determined on the basis of their value in use.
The discount rate used in measuring value in use was 9% per annum. The discount rate used
when the recoverable amount of these assets was previously estimated in 2007 was 8% per
annum.
HKAS 36.131 Additional impairment losses recognised in respect of property, plant and equipment in the year
amounted to HK$0.114 million (2007: nil). These losses are attributable to greater than anticipated
wear and tear.
HKAS 36.126(a) The impairment losses have been included in the line item [cost of sales/other expenses] in the
consolidated income statement.
Freehold land and buildings carried at revalued amounts
HKAS 16.77 An independent valuation of the Group’s land and buildings was performed by Messrs. [XYZ] to
(a) to (d) determine the fair value of the freehold land and buildings as at 31 December 2008 (2007: 31
December 2007). A revaluation decrease of HK$0.61 million (2007: increase of HK$2.097 million)
was recognised in relation to freehold land. The valuation was arrived at by reference to recent
market transactions on arm's length terms.
HKAS 16.77(e) Had the Group’s freehold land and buildings (other than freehold land and buildings classified as
held for sale or included in a disposal group) been measured on a historical cost basis, their
carrying amount would have been as follows:
2008 2007
HK$’000 HK$’000
Freehold land 11,710 14,500

Buildings 6,455 8,860
HKAS 17.31(a) The carrying amount of plant and equipment includes an amount of HK$18,000 (2007: HK$36,000)
in respect of assets held under finance leases.
HKAS 16.74(a) The Group has pledged freehold land and buildings having a carrying amount of approximately
Sch 10:12(4) HK$21 million (2007: HK$26 million) to secure general banking facilities granted to the Group.
93

Sch 10:12(9) 19. Prepaid lease payments
2008 2007
HK$’000 HK$’000
The Group’s prepaid lease payments comprise:
Land in Hong Kong:

Long lease - -
Medium term lease 1,700 1,750
Short lease - -
Land outside Hong Kong:

Long lease - -
Medium term lease 1,300 1,350
Short lease - -
_______ _______
3,000 3,100
_______ _______
Analysed for reporting purposes as:
Current assets (included in trade and other receivables) 100 100

Non-current assets 2,900 3,000
_______ _______
3,000 3,100
_______ _______
94

20. Investment properties
HK$’000
HKAS 40.76 FAIR VALUE
At 1 January 2007 112
Exchange adjustments -
Additions 12
Net increase in fair value 8
_______
At 31 December 2007 132

Additions 10
Net decrease in fair value (6)
_______
At 31 December 2008 136

_______
HKAS 40.75(d),(e) The fair value of the Group’s investment properties at 31 December 2008 and 2007 have been
arrived at on the basis of a valuation carried out on that date by Messrs. [XYZ], independent
qualified professional valuers not connected with the Group. Messrs. [XYZ] are members of the
Hong Kong Institute of Valuers, and have appropriate qualifications and recent experiences in the
valuation of similar properties in the relevant locations. The valuation was arrived at by reference to
market evidence of recent transaction prices for similar properties in the same locations and
conditions.
HKAS 40.75(b) All of the Group’s property interests held under operating leases to earn rentals purposes are
measured using the fair value model and are classified and accounted for as investment properties.
HKAS 40.75(g) All of the Group’s investment properties have been pledged to secure general banking facilities
Sch 10:12(4) granted to the Group.
Sch 10:12(9) The carrying amount of investment properties shown above comprises:
2008 2007
HK$’000 HK$’000
Land in Hong Kong:
Long lease - -
Medium-term lease 136 132
Land outside Hong Kong:

Long lease - -
Medium-term lease - -
Short lease - -
_______ _______
136 132
_______ _______
HKAS 40.75
Note: The entity is required to disclose the methods and significant assumptions applied in
determining the fair value of investment property including a statement whether the
determination of fair value was supported by market evidence or was more heavily based
on other factors (which should also be disclosed). Accordingly, for investment properties
whose fair values would not be determined based on current prices in active markets for
similar properties in the same location and condition, detailed disclosures should be
provided regarding the significant inputs and assumptions made during the valuation
process.
95

HKFRS 3.74 21. Goodwill

HKFRS 3.75
HK$’000
COST
At 1 January 2007 24,060
Acquired on acquisition of a subsidiary -
Eliminated on disposal of a subsidiary -
_______
At 31 December 2007 24,060

Acquired on acquisition of subsidiaries 435
Eliminated on disposal of a subsidiary (3,080)
Reclassified as held for sale (1,147)
_______
At 31 December 2008 20,268

_______
IMPAIRMENT
At 1 January 2007 -
Impairment loss recognised -
_______
At 31 December 2007 -
Impairment loss recognised (15)
Reclassified as held for sale -
_______
At 31 December 2008 (15)

_______
CARRYING AMOUNTS
At 31 December 2008 20,253
_______
At 31 December 2007 24,060

_______
HKFRS 3.76 During the financial year, the Group assessed the recoverable amount of goodwill, and determined
HKAS 36.130 that goodwill associated with the Group’s toy operations was impaired by HK$15,000 (2007: nil).
The recoverable amount of the toy operations was assessed by reference to value in use. A
discount factor of 15% (2007: 10.5%) per annum was applied in the value in use model.
The main factor contributing to the impairment of the cash-generating unit was the failure of one of
the newer product ranges to contribute to sales to the extent that product testing had predicted. No
write-down of the carrying amounts of other assets in the cash-generating unit was necessary. The
goodwill is included in the ‘toys’ reportable segment disclosed in note 6.
Particulars regarding impairment testing on goodwill are disclosed in note 22.
96

22. Impairment testing on goodwill
HKAS 36.134 As explained in note 6, the Group uses business segments as its primary segment for reporting
HKAS 36.135 segment information. For the purposes of impairment testing, goodwill set out in note 21 has been
allocated to the following cash generating units (CGUs). The carrying amount of goodwill (net of
accumulated impairment losses) as at 31 December 2008 and 2007 is allocated as follows:
2008 2007
HK$’000 HK$’000
Widget operations - PRC 8,500 8,500

Widget operations - Malaysia 4,000 4,000
Widget operations - Hong Kong 3,000 3,000
Construction operations - Hong Kong - 1,147
Bicycle operations - 3,080
Toy operations 4,318 4,333
Other operations 435 -
_______ _______
20,253 24,060
_______ _______
Widget operations - PRC and Hong Kong
The widget operations in PRC and Hong Kong produce similar products, and their recoverable
amounts are based on many of the same key assumptions. The recoverable amount of both CGUs
is determined based on a value in use calculation which uses cash flow projections based on
financial budgets approved by management covering a five-year period, and a discount rate of 15%
(2007: 9.5%) per annum.
Cash flow projections during the budget period for both CGUs are also based on the same
expected gross margins during the budget period and the same raw materials price inflation during
the budget period. Both sets of cash flows beyond that five year period have been extrapolated
using a steady 5% per annum growth rate. This growth rate exceeds by 0.5 percentage points the
long-term average growth rate for the international widgets market. However, among other factors,
the widget operations - PRC and Hong Kong benefit from the protection of a 20-year patent on its
Series Z widgets granted in 2005, which is still acknowledged as being one of the top widget
models in the market. Management believes that a 5% per annum growth rate is reasonable in the
light of that patent, and of other widget-related products being developed, and its intentions of
focusing its operations in this industry.
97

Widget operations - Malaysia
The recoverable amount of the widget operations - Malaysia unit is determined based on a value in
use calculation which uses cash flow projections based on financial budgets approved by
management covering a five-year period, and a discount rate of 15% (2007: 10.5%) per annum.
Cash flows beyond that five-year period have been extrapolated using a steady 5% per annum
growth rate. This growth rate exceeds by 0.5 percentage points the long-term average growth rate
for the international widgets market. However, the management believes, as described above, that
this rate is reasonable.
Toy operations
The recoverable amount of the toy operations unit is determined based on a value in use
calculation which uses cash flow projections based on financial budgets approved by management
covering a five-year period, and a discount rate of 15% (2007: 10.5%) per annum. Cash flows
beyond that five-year period have been extrapolated using a steady 2% per annum growth rate.
This growth rate does not exceed the long-term average growth rate for the market in which the toy
operations operate.
The key assumptions used in the value in use calculations for the widget and toy operations are as
follows:
Budgeted market share Average market share and sales in the period
and sales immediately before the budget period is expected to be
unchanged over the budget period. Due to the
potential economic downturn, the level of budgeted
sales is expected to reduce by 10% in the coming year.
After that, it is expected to remain stable over the
remaining budget period. The values assigned to the
assumptions reflect past experience, except for the
growth factor, which is consistent with management
plans for focusing operations in the widget and toy
industries. Management believes that the planned
market share growth and budgeted sales over the
budget period is reasonably achievable.
Budgeted gross margin Average gross margins achieved in the period

immediately before the budget period is expected to
remain unchanged over the budget period. Although
the management expects efficiency improvements will
contribute to reducing production costs, it considers the
current unfavourable market conditions will impose
pressure on the Group to reduce selling price in order
to maintain its competitiveness. After taking into
account these factors, the management considers that
it is reasonable to expect a stable gross margin over
the next five years.
Raw materials price inflation Raw material price inflation is estimated by reference to
forecast consumer price indices during the budget
period for the countries from which raw materials are
purchased. The values assigned to the key
assumptions are consistent with external sources of
information.
98

HKAS 38.118(c), 23. Other intangible assets

(e)
Capitalised
development
cost Patents Trademarks Licenses Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
COST
At 1 January 2007 3,230 5,825 4,711 6,940 20,706
Additions 358 - - - 358
Acquired on acquisition of a subsidiary - - - - -
Disposals or classified as held for sale - - - - -
Other [describe] - - - - -
_______ _______ _______ _______ _______
At 31 December 2007 3,588 5,825 4,711 6,940 21,064

Additions 6 - - - 6
Acquired on acquisition of a subsidiary - - - - -
_______ _______ _______ _______ _______
At 31 December 2008 3,594 5,825 4,711 6,940 21,070

_______ _______ _______ _______ _______
AMORTISATION AND IMPAIRMENT
At 1 January 2007 (1,000) (874) (3,533) (2,776) (8,183)

Provided for the year (682) (291) (236) (347) (1,556)
HKAS 36.130(b) Impairment losses recognised - - - - -
_______ _______ _______ _______ _______
At 31 December 2007 (1,682) (1,165) (3,769) (3,123) (9,739)

Provided for the year (718) (291) (236) (347) (1,592)
HKAS 36.130(b) Impairment losses recognised - - - - -
_______ _______ _______ _______ _______
At 31 December 2008 (2,400) (1,456) (4,005) (3,470) (11,331)

_______ _______ _______ _______ _______
CARRYING AMOUNTS
At 31 December 2008 1,194 4,369 706 3,470 9,739

_______ _______ _______ _______ _______
At 31 December 2007 1,906 4,660 942 3,817 11,325

_______ _______ _______ _______ _______
99

HKAS 38.118(d) The amortisation expense has been included in the line item [depreciation and amortisation
expense/administrative expenses/other expenses] in the consolidated income statement.
HKAS 38.118(a) The above intangible assets have definite useful lives. Such intangible assets are amortised on a
straight-line basis over the following periods:
Capitalised development cost 5 years

Patents 20 years
Trademarks 20 years
Licenses 20 years
100

24. Interests in associates
2008 2007
HK$’000 HK$’000
Sch 10:9(1)(a) Cost of investments in associates

Listed in Hong Kong 1,856 1,856
Unlisted 3,824 3,824
Share of post-acquisition profits,

net of dividends received 2,745 1,589
_______ _______
8,425 7,269
_______ _______
HKAS 28.37(a) Fair value of listed investments 2,221 3,078

_______ _______
s129(1)&(2) As at 31 December 2008 and 2007, the Group had interests in the following associates:
s129(4)&(5)
Proportion
of nominal
value of
issued capital
Form of Principal /registered Proportion
Name of business Place of place of Class of capital held of voting Principal
entity structure incorporation operation share held by the Group power held activities
A Plus Limited Incorporated Malaysia Malaysia Ordinary 17% 17% (Note 1) Transport
B Plus Limited Incorporated Japan Japan Ordinary 56% 56% (Note 2) Finance
C Plus Limited Incorporated Malaysia Malaysia Ordinary 25% 25% Transport
Notes:
HKAS 28.37(c),(d) 1) The Group is able to exercise significant influence over A Plus Limited because it has the
power to appoint two out of the six directors of that company.
HKAS 27.40(d) 2) The Group holds 56% of the issued share capital of B Plus Limited and controls 56% of
the voting power in general meeting. However, under a shareholders’ agreement, the
other shareholder controls the composition of the board of directors of B Plus Limited and
therefore the Group does not control B Plus Limited. The directors of the Company
consider that the Group does exercise significant influence over B Plus Limited and it is
therefore classified as an associate of the Group.
HKAS 28.37(e) The financial year end date for B Plus Limited is 31 Oct. For the purpose of applying the equity
method of accounting, the consolidated financial statements of B Plus Limited for the year ended 31
October 2008 (2007: 31 October 2007) have been used as the Group considers that it is
impracticable for B Plus Limited to prepare a separate set of financial statements as of 31
December. Appropriate adjustments have been made accordingly for the effects of significant
transactions between that date and 31 December 2008.
101

HKAS 28.37(b) The summarised financial information in respect of the Group’s associates is set out below:
2008 2007
HK$’000 HK$’000
Total assets 42,932 38,178

Total liabilities (14,848) (12,218)
_______ _______
Net assets 28,084 25,960

_______ _______
Group’s share of net assets of associates 8,425 7,269

_______ _______
Revenue 12,054 11,904

_______ _______
Profit for the year 3,953 5,479

_______ _______
Group’s share of profits of associates for the year 1,186 1,589

_______ _______
102

25. Joint ventures
HKAS 31.56 As at 31 December 2008 and 2007, the Group had interests in the following significant jointly
s129(1)&(2) controlled entities:
s129(4)&(5)
Proportion
of nominal
value of
Form of Principal issued capital Proportion
Name of business Place of place of Class of held by of voting Principal
entity structure incorporation operation share held the Group power held activities
A JV Limited Incorporated Hong Kong Hong Kong Ordinary 25% 25% Manufacture
of electronic
equipment
B JV Limited Incorporated Hong Kong Hong Kong Ordinary 40% 40% Rental
HKAS 31.56 The summarised financial information in respect of the Group’s interests in the jointly controlled
entities which are accounted for using proportionate consolidation with the line-by-line reporting
format is set out below:
2008 2007
HK$’000 HK$’000
Current assets 1,800 1,850

_______ _______

_______ _______
Current liabilities 936 785

_______ _______
Non-current liabilities 5,858 5,521

_______ _______
Income 2,124 2,005

_______ _______
Expenses 1,787 1,763

_______ _______
103

HKFRS 7.7 26. Held-to-maturity investments
Held-to-maturity investments comprise:
2008 2007
HK$’000 HK$’000
Debt securities (Note) 6,863 5,262

_______ _______

Current assets 4,804 3,604
_______ _______
6,863 5,262
_______ _______
Note:
HKFRS 7.7 The debt securities are listed in Hong Kong and carry fixed interest at 6%-7.5% (2007: 6.5%-7.5%)
per annum, payable monthly, and will mature from March 2009 to March 2010 (2007: June 2008 to
March 2010).
104

27. Available-for-sale investments
HKFRS 7.7 Available-for-sale investments comprise:

Sch 10:9(1)(a)
Sch 10:9(3) 2008 2007
HK$’000 HK$’000
Listed investments:
- Equity securities listed in Hong Kong 3,200 3,036
- Equity securities listed elsewhere - -
- Debt securities listed in Hong Kong (Note 1) 2,200 2,122
_______ _______
5,400 5,158
Unlisted securities:
- Equity securities (Note 2) 2,740 2,700
_______ _______
Total 8,140 7,858

_______ _______
Analysed for reporting purposes as :
Current assets - -
_______ _______
8,140 7,858
_______ _______
Notes:
1) The Group holds listed redeemable notes with fixed interest of 7% (2007: 7%) per annum.
The notes are redeemable at par value in 2010 (2007: redeemable at par value in 2010).
HKAS 28.37(d) 2) The Group holds 20% (2007: 20%) of the ordinary share capital of Rocket Corp Limited, a
company involved in the refining and distribution of fuel products. The directors of the
Company do not believe that the Group is able to exercise significant influence over
Rocket Corp Limited as the other 80% of the ordinary share capital is controlled by one
shareholder, who also manages the day-to-day operations of that company.
HKFRS 7.27(c) The unlisted equity securities are measured at fair value. Fair value is estimated using a
discounted cash flow model, which includes some assumptions that are not supportable by
observable market prices or rates. In determining the fair value, an earnings growth factor
of 5.2% (2007: 4.9%) and a risk adjusted discount factor of 12.2% (2007: 11.9%) are used.
105

28. Finance lease receivables
HKAS 17.47 Certain of the Group’s widget storage equipment are leased out under finance leases. All leases
HKFRS 7.7 are denominated in Hong Kong dollars. All interest rates inherent in the leases are fixed at the
respective contract dates over the lease terms.
Present value
Minimum of minimum
lease payments lease payments
2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000
Finance lease receivables comprise:
Within one year 282 279 198 188
In more than one year but not more
than five years 1,074 909 830 717
In more than five years - - - -
_______ _______ _______ _______
1,356 1,188 1,028 905
Less: unearned finance income (328) (283) N/A N/A

_______ _______ _______ _______
Present value of minimum lease
payment receivables 1,028 905 1,028 905
_______ _______ _______ _______

Current assets 198 188
Non-currents assets 830 717
_______ _______
1,028 905
_______ _______
HKAS 17.47(c) The average effective interest rate of the above finance leases is approximately 10.5% (2007: 11%)
per annum. Unguaranteed residual values of assets leased under finance leases are estimated at
HK$37,000 (2007: HK$42,000).
HKFRS 7.15 Finance lease receivable balances are secured over the storage equipment leased. The Group is
not permitted to sell or repledge the collateral in the absence of default by the lessee.
106

29. Deferred taxation
The following are the major deferred tax balances recognised and movements thereon during the
current and prior year:
HKAS 12.81(a),(g) Deferred tax liabilities:
Accelerated Revaluation Undistributed Available-

tax Intangible of Convertible Hedging profits of for-sale
depreciation assets properties loan notes instruments associates investments Others Total
At 1 January 2007 2,540 650 - - 110 570 202 352 4,424
Charge (credit) to
consolidated
income statement
for the year 585 (12) - - - 150 - 406 1,129
Charge to equity
for the year - - 533 - 79 - 19 631
Recycled to income - - - - (86) - - - (86)
Effect of change in
tax rate (397) (85) - - - - - - (482)
______ ______ ______ ______ ______ ______ ______ ______ ______
At 31 December 2007 2,728 553 533 - 103 720 221 758 5,616
Charge (credit) to
consolidated
income statement
for the year 1,606 (214) - (9) - 400 - 243 2,026
Charge (credit) to equity
for the year - - (152) 208 101 - (100) - 57
Recycled to income - - - - (89) - - - (89)
Acquisition/disposals (606) - - - - - - - (606)
Effect of change in
tax rate (22) - - - - - - (8) (30)
______ ______ ______ ______ ______ ______ ______ ______ ______
At 31 December 2008 3,706 339 381 199 115 1,120 121 993 6,974
______ ______ ______ ______ ______ ______ ______ ______ ______
HKAS 12.81(a),(g) Deferred tax assets:
Doubtful Tax
debts Provisions losses Total
HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2007 72 1,692 50 1,814
Credit (charge) to
consolidated income
statement for the year 179 (20) (50) 109
Charge to equity for the year - - - -
_______ _______ _______ _______
At 31 December 2007 251 1,672 - 1,923
Credit (charge) to
consolidated income
statement for the year (8) 42 - 34
Charge to equity for the year - - - -
Acquisition/disposals (4) - - (4)
_______ _______ _______ _______
At 31 December 2008 239 1,714 - 1,953

_______ _______ _______ _______
107

For the purpose of balance sheet presentation, certain deferred tax assets and liabilities have been
offset. The following is the analysis of the deferred tax balances for financial reporting purposes:
2008 2007
HK$’000 HK$’000
Deferred tax assets 1,714 1,023

Deferred tax liabilities (6,305) (4,716)
_______ _______
(4,591) (3,693)
Deferred tax liabilities associated
with assets held for sale (note 12) (430) -
_______ _______
(5,021) (3,693)
_______ _______
HKAS 12.82A Under the New Law of PRC, withholding tax is imposed on dividends declared in respect of profits
earned by PRC subsidiaries from 1 January 2008 onwards. Deferred taxation has not been
provided for in the consolidated financial statements in respect of temporary differences attributable
to the profits earned by the PRC subsidiaries amounting to HK$18 million as the Group is able to
control the timing of the reversal of the temporary differences and it is probable that the temporary
differences will not reverse in the foreseeable future.
HKAS 12.81(e) At the balance sheet date, the Group has unused tax losses of HK$3 million (2007: HK$3 million)
available for offset against future profits that may be carried forward indefinitely. No deferred tax
asset has been recognised in respect of the tax losses due to the unpredictability of future profit
streams.
HKFRS 7.7 30. Other financial assets/liabilities
HKFRS 7.31 Current Non-current

2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000
Other Financial Assets
Derivatives under hedge accounting

Fair value hedges – Interest rate swaps 72 37 212 140
Cash flow hedges – Foreign currency
forward contracts 244 220 - -
Other [describe] - - - -
_______ _______ _______ _______
316 257 212 140

_______ _______ _______ _______
Other Financial Liabilities
Financial guarantee contracts 6 18 - -

_______ _______ _______ _______
Derivatives under hedge accounting

Fair value hedges – Interest rate swaps 5 - - -
Cash flow hedges – Foreign currency
forward contracts 93 - - -
_______ _______ _______ _______
98 - - -
_______ _______ _______ _______
104 18 - -
_______ _______ _______ _______
108

Fair value hedges:
The Group uses interest rate swaps to minimise its exposure to fair value changes of its fixed-rate
Hong Kong dollar borrowings by swapping a proportion of the fixed-rate borrowings from fixed rates
to floating rates. The interest rate swaps and the corresponding borrowings have the same terms
and the directors of the Company consider that the interest rate swaps are highly effective hedging
instruments. Major terms of the interest rate swaps are set out below:
2008
Notional amount Maturity Swaps

HK$1,000,000 30/09/2009 8% for HIBOR + 3.75%
HK$2,000,000 31/05/2010 6% for HIBOR + 3.85%
HK$3,000,000 31/12/2011 7% for HIBOR + 4.00%
2007
Notional amount Maturity Swaps

HK$1,000,000 15/04/2008 6% for HIBOR + 3.25%
HK$1,000,000 30/09/2009 8% for HIBOR + 3.75%
HKFRS 7.34(a) Note: The table above provides an example of summary quantitative data about exposure to
interest rate risk at the reporting date that an entity may provide internally to key
management personnel.
During the year, the hedge was 100% (2007: 100%) effective in hedging the fair value exposure to
interest rate movements and as a result the carrying amount of the loan was adjusted by
HK$35,000 (2007: HK$27,000) which was included in profit or loss at the same time that the fair
value of the interest rate swap was included in profit or loss.
HKFRS 7.27 The fair values of interest rate swaps are measured at the present value of future cash flows
estimated and discounted based on the applicable yield curves derived from quoted interest rates.
Cash flow hedges:
At balance sheet date, the Group had the following foreign exchange forward contracts designated
as highly effective hedging instruments in order to manage the Group’s foreign currency exposure
in relation to foreign currency forecast sales and foreign currency denominated monetary items.
The terms of the foreign exchange contracts have been negotiated to match the terms of the
respective designated hedged items.
109

Major terms of these contracts are as follows:
2008
Notional amount Maturity Exchange rates

Buy RMB 5.5 million 15/03/2009 HK$1: RMB0.8838
Sell RMB 1 million 15/06/2009 HK$1: RMB0.8927
Sell RMB 3.3 million 30/04/2009 HK$1: RMB0.8833
2007
Notional amount Maturity Exchange rates

Buy RMB 4 million 31/03/2008 HK$1: RMB0.9460
Sell RMB 1 million 30/06/2008 HK$1: RMB0.9439
HKFRS 7.34(a) Note: The table above provides an example of summary quantitative data about exposure to
foreign exchange risk at the reporting date that an entity may provide internally to key
management personnel.
During the current year, fair value gains of HK$0.406 million (2007: HK$0.316 million) have been
deferred in equity and are expected to be released to the consolidated income statement at various
dates in the coming six months after the balance sheet date, the period in which sales are expected
to occur.
At the start of the third quarter of 2008, the Group reduced its forecasts on sales of widgets due to
increased local competition. The Group had previously hedged HK$1.079 million of future sales of
which HK$0.097 million are no longer expected to occur, and HK$0.982 million remain highly
probable. Accordingly, the Group had recycled HK$3,000 of gains on foreign currency forward
contracts relating to forecast transactions that are no longer expected to occur from the hedging
reserve into profit and loss.
HKFRS 7.23(d) During the year, gains and losses transferred from equity into profit or loss are included in the
following line items in the consolidated income statement:
2008 2007
HK$’000 HK$’000
Revenue 355 302

Other gains and losses - -
Finance costs - -
Other expenses - (15)
Income tax expense (89) (86)
_______ _______
266 201
_______ _______
HKFRS 7.27 The fair values of foreign currency forward contracts are measured using quoted forward exchange
rates and yield curves derived from quoted interest rates matching maturities of the contracts.
110

31. Inventories
2008 2007
HK$’000 HK$’000
HKAS 2.36(b) Raw materials 4,972 8,322

Work in progress 1,980 2,454
Finished goods 12,762 11,018
_______ _______
19,714 21,794
Classified as part of a disposal group held for sale (see note 12) (830) -
_______ _______
18,884 21,794
_______ _______
HKAS 1.52 Inventories of HK$1.29 million (2007: HK$0.86 million) are expected to be recovered after more
than twelve months.
HKFRS 7.7 32. Loan receivables

HKFRS 7.31
2008 2007
HK$’000 HK$’000
Loan to associates 2,981 2,981

_______ _______
The Group has provided short-term loans to associates which are renewable on an annual basis.
The effective interest for the current year is 5% (2007: 5%) per annum.
HKFRS 7.7 33. Amounts due from directors
s161B Directors’ current accounts/loans to officers disclosed pursuant to section 161B of the Companies
Ordinance are as follows:
Maximum
amount
Terms Balance at Balance at outstanding
Director of loan 31/12/2008 1/1/2008 during the year
HK$’000 HK$’000 HK$’000
Gary D.K. Wong Secured on property,

repayable within one year,
interest free (Note) 440 - 480
Daniel D.D. Lee Unsecured,

repayable within one year,
interest free 216 107 216
_______ _______
656 107
_______ _______
Note:
HKFRS 7.15 The loan is secured over a property owned by Gary D.K. Wong. The Group is not permitted to sell
or repledge the collateral in the absence of default by that director.
111

34. Trade and other receivables
2008 2007
HK$’000 HK$’000
Trade receivables 18,034 16,700

Less: Allowance for doubtful debts (798) (758)
_______ _______
17,236 15,942
Deferred consideration (note 48) 960 -
Prepaid lease payments 100 100
Other [describe] 54 20
_______ _______
Total trade and other receivables 18,350 16,062

_______ _______
App 16.4(2)(b)(ii) The following is an aged analysis of trade receivables net of allowance for doubtful debts at the
GR 18.50B(2)(b)(ii) balance sheet date:
2008 2007
HK$’000 HK$’000
0-60 days 15,674 14,909
61-90 days 1,100 700
91-120 days 462 333

_______ _______
17,236 15,942
_______ _______
HKFRS 7.36(c),37 The average credit period on sales of goods is 60 days. The Group has provided fully for all
receivables over 120 days because historical experience is such that receivables that are past due
beyond 120 days are generally not recoverable.
HKFRS 7.36(c) Before accepting any new customer, the Group uses an external credit scoring system to assess
the potential customer’s credit quality and defines credit limits by customer. Limits and scoring
attributed to customers are reviewed twice a year. 80% of the trade receivables that are neither
past due nor impaired have the best credit scoring attributable under the external credit scoring
system used by the Group.
HKFRS 7.36(c),37 Included in the Group’s trade receivable balance are debtors with a carrying amount of HK$1.562
million (2007: HK$1.033 million) which are past due at the reporting date for which the Group has
not provided for impairment loss. The Group does not hold any collateral over these balances. The
average age of these receivables is 84 days (2007: 85 days).
112

HKFRS 7.37(a) Ageing of trade receivables which are past due but not impaired
2008 2007
HK$’000 HK$’000
61-90 days 1,100 700

91-120 days 462 333
_______ _______
Total 1,562 1,033

_______ _______
HKFRS 7.16 Movement in the allowance for doubtful debts
2008 2007
HK$’000 HK$’000
Balance at beginning of the year 758 464

HKFRS 7.20(e) Impairment losses recognised on receivables 40 420
Amounts written off as uncollectible - (32)
Amounts recovered during the year - (94)
Impairment losses reversed - -
Unwind of discount - -
_______ _______
Balance at end of the year 798 758

_______ _______
HKFRS 7.37(b) Included in the allowance for doubtful debts made for the year are individually impaired trade
receivables with a balance of HK$40,000 (2007: HK$52,000) which have been placed under
liquidation. The impairment recognised represents the difference between the carrying amount of
HKFRS 7.37(c) these trade receivables and the present value of the expected liquidation proceeds. The Group
does not hold any collateral over these balances.
HKFRS 7.37(b) Ageing of impaired trade receivables
2008 2007
HK$’000 HK$’000
60-90 days 5 5
91-120 days 6 11
120+ days 29 36
_______ _______
Total 40 52
_______ _______
Included in the trade receivables are amounts due from related parties amounted to HK$636,000
(2007: HK$632,000). No impairment has been made to receivables from related parties (see note
57).
Transfer of financial assets
HKFRS 7.13 During the year, the Group transferred HK$1,052,000 (2007: nil) of trade receivables to an
HKFRS 7.14(a) unrelated entity. As part of the transfer, the Group provided the transferee a credit guarantee over
the expected losses of those receivables. Accordingly, the Group continues to recognise the full
carrying amount of the receivables and has recognised the cash received on the transfer as a
secured borrowing (see note 39). At 31 December 2008, the carrying amount of the transferred
short-term receivables is HK$946,000 (2007: nil). The carrying amount of the associated liability is
HK$923,000 (2007: nil).
113

35. Amounts due from (to) customers for contract work
2008 2007
HK$’000 HK$’000
Contracts in progress at the balance sheet date
HKAS 11.40 Contract costs incurred plus recognised profits

less recognised losses 1,517 1,386
Less: progress billings (1,313) (1,171)
_______ _______
204 215
_______ _______
HKAS 11.42 Analysed for reporting purposes as:
Amounts due from contract customers 240 230

Amounts due to contract customers (36) (15)
_______ _______
204 215
_______ _______
HKAS 11.40(c) At 31 December 2008, retentions held by customers for contract works amounted to HK$75,000
(2007: HK$69,000). Advances received from customers for contract work amounted to HK$14,000
(2007: nil).
36. Held-for-trading investments (other than derivatives)
HKFRS 7.7 Held-for-trading investments include:

Sch 10.9(1)(a)
Sch 10.9(3) 2008 2007
HK$’000 HK$’000
Listed securities:
- Equity securities listed in Hong Kong 10,250 6,480
- Equity securities listed elsewhere 2,230 1,968
_______ _______
12,480 8,448
_______ _______
HKFRS 7.27 Fair values are determined with reference to quoted market bid prices.
114

37. Bank balances/pledged bank deposits/bank overdrafts
Bank balances carry interest at market rates which range from 2% to 4% (2007: 3.5% to 4%) per
annum. The pledged bank deposits carry fixed interest rate of 3.5% (2007: 4.25%) per annum.
Bank overdrafts carry interest at market rates which range from 6.5% to 9.5% (2007: 6% to 6.75%)
per annum.
HKFRS 7.14 Pledged bank deposits represents deposits pledged to banks to secure banking facilities granted to
the Group. Deposits amounting to HK$2 million (2007: HK$2 million) have been pledged to secure
bank overdrafts and short-term bank loans and are therefore classified as current assets. The
pledged bank deposits will be released upon the settlement of relevant bank borrowings.
38. Trade and other payables
2008 2007
HK$’000 HK$’000
Trade payables 16,276 21,128

Other payables 90 95
_______ _______
16,366 21,223
_______ _______
App 16.4(2)(c)(ii) The following is an aged analysis of trade payables at the balance sheet date:
GR 18.50B(2)(c)(ii)
2008 2007
HK$’000 HK$’000
0-60 days 9,950 11,366
61-90 days 4,803 6,233
>90 days 1,523 3,529

_______ _______
16,276 21,128
_______ _______
HKFRS 7.7 The average credit period of purchases is 3 months. The Group has financial risk management
policies in place to ensure that all payables are paid within the credit timeframe.
Included above are payables to related parties amounted to HK$380,000 (2007: HK$217,000) (see
note 57).
115

39. Borrowings
2008 2007
HK$’000 HK$’000
Bank loans (Note 1) 14,982 17,404

Bills of exchange (Note 2) 358 916
Collateralised borrowings (Note 3) 923 -
Loans from related parties (Note 4) 12,917 34,124
Loans from other entities (Note 5) 21,361 4,437
_______ _______
50,541 56,881
_______ _______
Sch 10:10 Secured 15,960 17,739

Unsecured 34,581 39,142
_______ _______
50,541 56,881
_______ _______
App 16.22 (1) Carrying amount repayable:
GR 18.21 On demand or within one year 21,899 25,168
More than one year, but not exceeding two years 14,074 16,167
More than two years but not more than five years 8,921 9,218
More than five years 5,647 6,328
_______ _______
50,541 56,881
Less: Amounts due within one year shown
under current liabilities (21,899) (25,168)
_______ _______
28,642 31,713
_______ _______
HKFRS 7.7 Notes:

HKFRS 7.14
1) Secured by a mortgage over the Group’s freehold land and buildings (see note 54) and
bear interest at HIBOR + 4.75% (2007: HIBOR + 4.75%) per annum. The weighted
average effective interest rate on the bank loans is 8.1% (2007: 8.32%) per annum.
2) Bills of exchange with a variable interest rate were issued in 2008. The weighted average
effective interest rate on the bills is 6.8% (2007: 6.8%) per annum.
3) Secured by a charge over certain of the Group’s trade receivables (see notes 34 and 54).
4) Bear interest at HIBOR + 4.5% (2007: HIBOR + 4.5%) per annum. Interest of 7.0% - 8.2%
per annum is charged on the outstanding loan balances (2007: 8.0% - 8.2% per annum)
(see note 57).
5) Fixed rate loans with a financial institution amounted to approximately HK$ 6 million (2007:
HK$ 2 million) with maturity periods not exceeding 3 years (2007: 2 years). The weighted
average effective interest rate on the fixed rate loans is 7.15% (2007: 8.10%) per annum.
The Group enters into interest rate swaps to exchange fixed rate interest for variable rate
interest in order to hedge against the fair value interest rate risk (see note 30). The
remaining balance of approximately HK$ 15.4 million (2007: HK$ 2.4 million) carries
interest at HIBOR + 3.75% (2007: HIBOR + 3%) per annum, ranging from 6.5% - 9%
(2007: 7.3% - 8.5%) per annum during the current year.
116

HKFRS 7.18 During 2008, the Group was late in paying interest for the first quarter on one of its loans with a
carrying amount of HK$5 million. The delay arose because of a temporary lack of funds on the date
interest was payable due to a technical problem on settlement. The interest payment outstanding
of HK$107,500 was repaid in full on the following day, including the additional interest and penalty.
The lender did not request accelerated repayment of the loan and the terms of the loan were not
changed. Management has reviewed the Group’s settlement procedures to ensure that such
circumstances do not recur.
40. Obligations under finance leases
HKAS 17.31(e) The Group leased certain of its manufacturing equipment under finance leases. The average lease
HKFRS 7.7 term is 5 years (2007: 5 years). Interest rates underlying all obligations under finance leases are
fixed at respective contract dates ranging from 3.5% to 5.5% (2007: 3.75% - 6%) per annum.
These leases have no terms of renewal or purchase options and escalation clauses. No
arrangements have been entered into for contingent rental payments.
Present value
Minimum of minimum
lease payments lease payments
2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000
HKAS 17.31(b) Amounts payable under finance leases:
Within one year 10 58 9 54

In more than one year but not more
than five years 6 44 5 35
In more than five years - - - -
_______ _______ _______ _______
16 102 14 89
Less: future finance charges (2) (13) N/A N/A

_______ _______ _______ _______
Present value of lease obligations 14 89 14 89

_______ _______
Less: Amount due for settlement within 12 months

(shown under current liabilities) (9) (54)
_______ _______
HKAS 1.52 Amount due for settlement after 12 months 5 35

_______ _______
Sch 10:10 The Group’s obligations under finance leases are secured by the charge over the leased assets.
HKFRS 7.31 Financial lease obligations are denominated in Hong Kong dollars, currency other than the
functional currency of the group entity.
117

HKAS 37.84 41. Provisions

Sch 10:6&7
Employee Rectification
benefits work Warranties Total
HK$’000 HK$’000 HK$’000 HK$’000
(Note 1) (Note 2) (Note 3)
At 1 January 2008 4,388 - 1,185 5,573

Additional provisions recognised - 4,170 744 4,914
Utilisation of provision (3,174) (1,112) (515) (4,801)
Unwinding of discount - - 28 28
Acquisition of Subsix Limited 45 - - 45
_______ _______ _______ _______
At 31 December 2008 1,259 3,058 1,442 5,759

_______ _______ _______ _______
2008 2007
HK$’000 HK$’000

Current liabilities 3,461 3,247
Non-current liabilities 2,298 2,326
_______ _______
5,759 5,573
_______ _______
HKAS 37.85 Notes:
HKFRS 3.50 1) The provision for employee benefits represents annual leave and vested long service
leave entitlements accrued and compensation claims made by employees. On the
acquisition of Subsix Limited, the Group recognised an additional contingent liability in
respect of employees’ compensation claims outstanding against that Company, which will
be settled in February 2009.
2) The provision for rectification work relates to the estimated cost of work agreed to be
carried out for the rectification of goods supplied to one of the Group’s major customers
(see note 13). Anticipated expenditure for 2009 is HK$1.94 million, and for 2010 is
HK$1.118 million. These amounts have not been discounted for the purpose of measuring
the provision for rectification work, because the effect is not material.
3) The provision for warranty claims represents the present value of the directors’ best
estimate of the future outflow of economic benefits that will be required under the Group’s
warranty program for electronic toys. The estimate has been made on the basis of
historical warranty trends and may vary as a result of new materials, altered
manufacturing processes or other events affecting product quality.
118

HKAS 1.76(a) 42. Share capital

Sch 10:2
Number of shares Share Capital
2008 2007 2008 2007
’000 ’000 HK$’000 HK$’000
Authorised
200 million ordinary shares of

HK$1 each 200,000 200,000 200,000 200,000
_______ _______ _______ _______
Issued and fully paid
At beginning of year 23,005 23,005 23,005 23,005

Repurchase of shares (5,500) - (5,500) -
Exercise of share options 314 - 314 -
_______ _______ _______ _______
At end of year 17,819 23,005 17,819 23,005

_______ _______ _______ _______
During the year, the Company repurchased its own shares through the Stock Exchange of Hong
Kong Limited as follows:
Aggregate
Month of No. of ordinary Price per share consideration
repurchase shares at HK$1 each Highest Lowest paid
’000 HK$ HK$ HK$’000
November 2008 3,000 3.15 2.85 9,172
December 2008 2,500 3.05 2.90 7,731
The above shares were cancelled upon repurchase. None of the Company’s subsidiaries
repurchased, sold or redeemed any of the Company’s listed shares during the year.
119

HKAS 1.76(b) 43. Share premium and reserves

Convertible
Share equity revaluation revaluation Translation options Hedging Retained reserve of a Minority
premium reserve reserve reserve reserve reserve reserve profits Total subsidiary interests Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2008 26,474 - 1,653 527 317 246 278 94,534 124,029 500 19,505 144,034
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Deficit on revaluation of properties - - (610) - - - - - (610) - - (610)

Gain on cash flow hedges - - - - - - 406 - 406 - - 406
Loss on fair value changes of
available-for-sale investments - - - (400) - - - - (400) - - (400)
Exchange differences arising on
translation of foreign operations - - - - (71) - - - (71) - - (71)
Deferred tax - - 152 100 - - (101) - 151 - - 151
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Net (expenses) income recognised
directly in equity - - (458) (300) (71) - 305 - (524) - - (524)
Profit for the year - - - - - - - 23,376 23,376 - 4,000 27,376
Transfer to profit or loss on cash flow
hedges - - - - - - (355) - (355) - - (355)
Transfer to initial carrying amount of
non-financial items on cash flow hedges - - - - - - - - - - - -
Deferred tax on transfer to profit or loss - - - - - - 89 - 89 - - 89
Transfer to profit or loss on
disposal of foreign operation - - - - (120) - - - (120) - - (120)
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Total recognised income and expense
for the year - - (458) (300) (191) - 39 23,376 22,466 - 4,000 26,466
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Recognition of equity-settled share
based payments - - - - - 218 - - 218 - - 218
Transaction costs attributable to issue
of new shares (6) - - - - - - - (6) - - (6)
Issue of ordinary shares upon
exercise of share options 433 - - - - (285) - - 148 - - 148
Repurchase of shares (10,848) - - - - - - (555) (11,403) - - (11,403)
Transaction costs attributable to
repurchase of shares (227) - - - - - - - (227) - - (227)
Issue of convertible notes - 834 - - - - - - 834 - - 834
Dividends recognised as distribution - - - - - - - (6,635) (6,635) - - (6,635)
Transfer to retained profits - - - - - - (3) 3 - - - -
Deferred tax - (208) - - - - - - (208) - - (208)
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
At 31 December 2008 15,826 626 1,195 227 126 179 314 110,723 129,216 500 23,505 153,221
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Note: Where the entity has adopted the approach to present changes in equity representing income and expense in a separate component of the financial statements as illustrated in
Alt 2 on page 49, a reconciliation of opening and closing balances of share capital (note 42), share premium and reserves should be given in the notes.
120


Convertible
Share equity revaluation revaluation Translation options Hedging Retained reserve of a Minority
premium reserve reserve reserve reserve reserve reserve profits Total subsidiary interests Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2007 26,474 - 54 470 140 - 242 73,444 100,824 - 16,742 117,566
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Surplus on revaluation of properties - - 2,132, - - - - - 2,132 - - 2,132

Gain on cash flow hedges - - - - - - 316 - 316 - - 316
Gain on fair value changes of
available-for-sale investments - - - 76 - - - - 76 - - 76
Exchange differences arising on
translation of foreign operations - - - - 177 - - - 177 - - 177
Deferred tax - - (533) (19) - - (79) - (631) - - (631)
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Net income (expense) recognised - - 1,599 57 177 - 237 - 2,070 - - 2,070

directly in equity
Profit for the year - - - - - - - 27,569 27,569 - 2,763 30,332
Transfer to profit or loss on sale of
available-for-sale investments - - - - - - - - - - - -
Transfer to profit or loss on cash
flow hedges - - - - - - (287) - (287) - - (287)
Transfer to initial carrying amount of
non-financial items on cash flow hedges - - - - - - - - - - - -
Deferred tax on transfer to profit or loss - - - - - - 86 - 86 - - 86
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Total recognised income for the year - - 1,599 57 177 - 36 27,569 29,438 - 2,763 32,201
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Recognition of equity-settled share

based payments - - - - - 246 - - 246 500 - 746
Dividends recognised as distribution - - - - - - - (6,479) (6,479) - - (6,479)
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
At 31 December 2007 26,474 - 1,653 527 317 246 278 94,534 124,029 500 19,505 144,034
______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______
Note: See previous page for the explanation inclusion of this note.
121

44. Convertible loan notes
HKFRS 7.7 4.5 million Hong Kong dollar denominated convertible loan notes were issued by the Company on
1 September 2008 at an issue price of HK$1.10 per note. Each note entitles the holder to convert
to one ordinary share at a conversion price of HK$1.25.
Conversion may occur at any time between 1 July 2011 and 31 August 2011. If the notes have not
been converted, they will be redeemed on 1 September 2011 at HK$1.00. Interest of 5.5% per
annum is payable annually until the notes are converted or redeemed.
The convertible loan notes contain two components, liability and equity elements. The equity
element is presented in equity heading “convertible loan notes equity reserve”. The effective
interest rate of the liability component is 8% per annum.
The movement of the liability component of the convertible loan notes for the year is set out below:
HK$’000
Proceeds of issue 4,950

Equity component (834)
_______
Liability component at date of issue 4,116

Interest charged 110
Interest paid (82)
_______
Liability component at 31 December 2008 4,144

_______
122

HKAS 1.124A 45. Capital risk management

HKAS 1.124B
Note: The following are examples of the types of disclosures that might be required in this area.
The matters disclosed will be dictated by the circumstances of the individual entity, and
based on information provided internally to the entity’s key management personnel.
The Group manages its capital to ensure that entities in the Group will be able to continue as a
going concern while maximising the return to stakeholders through the optimisation of the debt and
equity balance. The Group’s overall strategy remains unchanged from prior year.
The capital structure of the Group consists of debt (which includes borrowings, convertible loan
notes and obligations under finance leases), cash and cash equivalents and equity attributable to
equity holders of the Company, comprising issued share capital, reserves and retained profits.
Gearing ratio
The Group’s risk management committee reviews the capital structure on a semi-annual basis. As
part of this review, the committee considers the cost of capital and the risks associated with each
class of capital. The Group has a target gearing ratio of 20-25% determined as the proportion of
net debt to equity. Based on the committee’s recommendations, the Group expects to increase its
gearing ratio closer to 25% through the issue of new debt and the payment of dividends.
The gearing ratio at the year end was as follows:
2008 2007
HK$’000 HK$’000
Debt (i) 54,699 56,970

Cash and cash equivalents(note 49) (17,836) (17,400)
_______ _______
Net debt 36,863 39,570
Equity (ii) 171,040 167,039
Net debt to equity ratio 22% 24%
(i) Debt comprises long-term and short-term borrowings, obligations under finance leases and
convertible loan notes as detailed in notes 39, 40 and 44 respectively.
(ii) Equity includes all capital and reserves of the Group.
123

46. Financial instruments
46.1 Categories of financial instruments
2008 2007
HK$’000 HK$’000
Financial assets
Fair value through profit or loss

HKFRS 7.8(a) Held for trading 12,480 8,448
HKFRS 7.8(a) Designated as at FVTPL (see below) - -
Derivative instruments in designated hedge accounting relationships 528 397
HKFRS 7.8(b) Held-to-maturity investments 6,863 5,262
HKFRS 7.8(c) Loans and receivables (including cash and cash equivalents) 43,227 38,808
HKFRS 7.8(d) Available-for-sale investments 8,140 7,858
Financial liabilities
Fair value through profit or loss

HKFRS 7.8(e) Held for trading - -
HKFRS 7.8(e) Designated as at FVTPL (see below) - -
Derivative instruments in designated hedge accounting relationships 98 -
HKFRS 7.8(f) Amortised cost 71,499 78,387
Financial guarantee contracts 6 18
Loans or receivables designated as at FVTPL
Carrying amount of loans or receivables designated as at FVTPL - -
HKFRS 7.9(c) Cumulative changes in fair value attributable to changes in credit risk
- -
HKFRS 7.9(c) Changes in fair value attributable to changes in credit risk recognised
during the year - -
HKFRS 7.9(b),(d) Credit derivatives over loans or receivables at fair value
2008 2007
HK$’000 HK$’000
Opening fair value - -

Additions during the year - -
Realised during the year - -
Change in fair value - -
_______ _______
Closing fair value - -

_______ _______
124

Financial liabilities designated as at FVTPL
2008 2007
HK$’000 HK$’000
HKFRS 7.10(b) Difference between carrying amount and maturity amount
Fair value - -
Amount payable at maturity - -

_______ _______
- -
_______ _______
HKFRS 7.10(a) Cumulative changes in fair value attributable to changes in

credit risk (i) - -
HKFRS 7.10(a) Changes in fair value attributable to change in credit risk

recognised during the period (i) - -
HKFRS 7.11 (i) The change in fair value attributable to change in credit risk was calculated as the difference
between total change in fair value of financial liabilities designated as at FVTPL and the
change in fair value of financial liabilities designated as at FVTPL due to change in market risk
factors alone. The change in fair value due to market risk factors was calculated using
benchmark interest yield curves as at the balance sheet date holding credit risk margin
constant. The fair value of financial liabilities designated as at FVTPL was estimated by
discounting future cash flows using quoted benchmark interest yield curves as at the balance
sheet date and by obtaining lender quotes for borrowing of similar maturity to estimate credit
risk margin.
HKFRS 7.31 46.2 Financial risk management objectives and policies
The Group’s Corporate Treasury function provides services to the business units, co-ordinates
access to domestic and international financial markets, monitors and manages the financial risks
relating to the operations of the Group through internal risk reports which analyse exposures by
degree and magnitude of risks. These risks include market risk (including currency risk, interest
rate risk and other price risk), credit risk and liquidity risk.
The Group seeks to minimise the effects of these risks by using derivative financial instruments to
hedge these risk exposures. The use of financial derivatives is governed by the Group’s policies
approved by the board of directors, which provide written principles on foreign exchange risk,
interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments,
and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by
the internal auditors on a continuous basis. The Group does not enter into or trade derivative
financial instruments for speculative purposes.
The Corporate Treasury function reports monthly to the Group’s risk management committee, an
independent body that monitors risks and policies implemented to mitigate risk exposures.
HKFRS 7.33(c) There has been no change to the Group’s risk exposure relating to financial instruments or the
manner in which it manages and measures the risks.
125

HKFRS 7.33 46.2.1 Market risk
HKFRS 7.22 The Group’s activities expose it primarily to the financial risks of changes in foreign currency
exchange rates, interest rates and equity prices. The Group enters into a variety of derivative
financial instruments to manage its exposure to interest rate and foreign currency risks, including:
• forward foreign exchange contracts to hedge the exchange rate risk in relation to foreign
currency denominated monetary items and sales of widgets to PRC; and
• interest rate swaps to mitigate the fair value interest rate risk.
Market risk exposures are measured using value-at-risk (VaR) and are supplemented by sensitivity
analysis.
HKFRS 7.41 46.2.1.1 Value at Risk (VaR) analysis
The VaR risk measure estimates the potential loss in pre-taxation profit over a given holding period
for a specified confidence level. The VaR methodology is a statistically defined, probability-based
approach that takes into account market volatilities as well as risk diversification by recognising
offsetting positions and correlations between products and markets. Risks can be measured
consistently across all markets and products, and risk measures can be aggregated to arrive at a
single risk number. The one-day 99% VaR number used by the Group reflects the 99% probability
that the daily loss will not exceed the reported VaR.
VaR methodologies employed to calculate daily risk numbers include the historical and variance-
covariance approaches. In addition to these two methodologies, Monte Carlo simulations are
applied to the various portfolios on a monthly basis to determine potential future exposure.
Historical VaR Average Minimum Maximum Year end

(99%, one-day) 2008 2007 2008 2007 2008 2007 2008 2007
by risk type HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Foreign exchange 980 1,340 546 943 1,200 1,600 980 1,350
Interest rate 115 60 85 45 150 95 105 55
Diversification (45) (40) - - - - (55) (50)
_____ _____ _____ _____ _____ _____ _____ _____
Total VaR exposure 1,050 1,360 - - - - 1,030 1,355

_____ _____ _____ _____ _____ _____ _____ _____
While VaR captures the Group’s daily exposure to currency and interest rate risk, sensitivity
analysis evaluates the impact of a reasonably possible change in interest or foreign currency rates
over a year. The longer time frame of sensitivity analysis complements VaR and helps the Group to
assess its market risk exposures. Details of sensitivity analysis for foreign currency risk and
interest rate risk are set out below.
126

HKFRS 7.33, 34 46.2.1.2 Foreign currency risk management
Several subsidiaries of the Group have foreign currency sales and purchases, which expose the
Group to foreign currency risk. Approximately 28% of the Group’s sales are denominated in
currencies other than the functional currency of the group entity making the sale, whilst almost 90%
of costs are denominated in the group entity’s respective functional currencies.
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary
liabilities at the reporting date are as follows:
Liabilities Assets
2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000
RMB 8,297 7,469 1,574 1,671

Euro 186 135 - -
Other - - - -
The Group requires all its group entities to use foreign exchange forward contracts to eliminate the
currency exposures on any individual transactions in excess of HK$0.5 million. Other transaction
that involves less than HK$0.5 million may also be hedged on a case-by-case basis. The foreign
exchange forward contracts must be in the same currency as the hedged item. On this basis, the
Group has entered into such forward contracts in relation to the foreign currency denominated
monetary assets and monetary liabilities amounting to RMB1 million and RMB5.5 million (2007:
RMB1 million and RMB4 million) respectively. It is the Group’s policy to negotiate the terms of the
hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness (see
note 30 for details).
Sensitivity analysis
HKFRS 7.B8 The Group is mainly exposed to the effects of fluctuation in RMB and Euro.
HKFRS 7.40(b) The following table details the Group’s sensitivity to a 5% and 10% (2007: 5%) increase and
HKFRS 7.40(c) decrease in Hong Kong dollars against RMB and Euro respectively. As a result of the volatile
HKFRS 7.34(a) financial market in 2008, the management adjusted the sensitivity rate from 5% to 10% for the
purpose of assessing foreign currency risk against Euro. Hence, 5% and 10% (2007: 5%) are the
sensitivity rates used in the current year when reporting foreign currency risk internally to key
management personnel and represent management’s assessment of the reasonably possible
change in foreign exchange rates. The sensitivity analysis includes outstanding foreign currency
denominated monetary items and foreign currency forward contracts designated as cash flow
hedges. It also includes external loans as well as loans to foreign operations within the Group
where the denomination of the loan is in a currency other than the currency of the lender or the
borrower. A positive number below indicates an increase in profit and other equity where the Hong
Kong dollars strengthen 5% (2007: 5%) against RMB and 10% (2007: 5%) against Euro. For a 5%
(2007: 5%) weakening of the Hong Kong dollars against RMB and 10% (2007: 5%) against Euro,
there would be an equal and opposite impact on the profit and other equity, and the balances below
would be negative.
Impact of RMB Impact of Euro
2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000
Sensitivity rate 5% 5% 10% 5%

HKFRS 7.40(a) Profit or loss 220 172 (i) 16 5 (iii)
HKFRS 7.40(a) Other equity 35 50 (ii) - -
(i) This is mainly attributable to the exposure outstanding on receivables and payables
denominated in RMB not subject to cash flow hedge at year end.
(ii) This is as a result of the changes in fair value of derivative instruments designated as cash flow
hedges in relation to the Group’s foreign currency forecast sales.
(iii) This is mainly attributable to the exposure to outstanding payables denominated in Euro at the
year end.
127

HKFRS 7.42 In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign
exchange risk as the year end exposure does not reflect the exposure during the year. RMB
denominated sales are seasonal with lower sales volumes in the last quarter of the financial year,
which results in a reduction in RMB receivables at year end.
HKFRS 7.22 46.2.1.3 Interest rate risk management

HKFRS 7.33
HKFRS 7.34 The Group’s fair value interest rate risk relates primarily to fixed-rate borrowings from a financial
institution (see note 39 for details of these borrowings). In relation to these fixed-rate borrowings,
the Group enters into interest rate swaps to hedge against its exposures to changes in fair values of
those borrowings. The critical terms of these interest rate swaps are similar to those of hedged
borrowings. These interest rate swaps are designated as effective hedging instruments and hedge
accounting is applied (see note 30 for details).
The Group’s cash flow interest rate risk relates primarily to variable-rate borrowings (see note 39 for
details of these borrowings). It is the Group’s policy to keep its borrowings at floating rate of
interests so as to minimise the fair value interest rate risk.
HKFRS 7.34(c) The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in
the liquidity risk management section of this note. The Group’s cash flow interest rate risk is mainly
concentrated on the fluctuation of HIBOR arising from the Group’s Hong Kong dollar denominated
borrowings.
HKFRS 7.40(b) The sensitivity analyses below have been determined based on the exposure to interest rates for
derivatives and non-derivative instruments. The analysis is prepared assuming the financial
instruments outstanding at the balance sheet date were outstanding for the whole year. A 100
HKFRS 7.34(a) basis points (2007: 50 basis points) increase or decrease in HIBOR is used when reporting interest
HKFRS 7.40(c) rate risk internally to key management personnel and represents management’s assessment of the
reasonably possible change in interest rates. As a result of the volatile financial market, the
management adjusted the sensitivity rate from 50 basis points to 100 basis points in the current
year for the purpose of analysing interest rate risk.
HKFRS 7.40(a) If interest rates had been 100 basis points (2007: 50 basis points) higher/lower and all other
variables were held constant, the Group’s:
• post tax profit for the year ended 31 December 2008 would decrease/increase by HK$340,000
(2007: decrease/increase by HK$205,000). This is mainly attributable to the Group’s exposure
to interest rates on its variable rate borrowings and the interest rate swaps which were
designated as hedging instruments of fair value hedges; and
• other equity reserves would decrease/increase by HK$15,000 (2007: decrease/increase by

HK$7,500) mainly as a result of the changes in the fair value of available-for-sale fixed rate
instruments.
128

HKFRS 7.33, 34 46.2.1.4 Other price risks
The Group is exposed to equity price risk through its investment in listed equity securities. The
management manages this exposure by maintaining a portfolio of investments with different risk
HKFRS 7.34(c) and return profiles. The Group’s equity price risk is mainly concentrated on equity securities
operating in banking, telecommunication and construction industry sectors quoted in The Stock
Exchange of Hong Kong Limited. In addition, the Group has appointed a special team to monitor
the price risk and will consider hedging the risk exposure should the need arise.
HKFRS 7.40(b) The sensitivity analyses below have been determined based on the exposure to equity price risk at
HKFRS 7.40(c) the reporting date. For sensitivity analysis purpose, the sensitivity rate is increased to 15% in the
current year as a result of the volatile financial market.
HKFRS 7.40(a) If equity prices had been 15% higher/lower (2007: 5% higher/lower):
• post-tax profit for the year ended 31 December 2008 would increase/decrease by
HK$1,410,000 (2007: increase/decrease by HK$320,000). This is mainly due to the changes
in fair value of held-for-trading investments; and
• other equity reserves would increase/decrease by HK$660,000 (2007: increase/decrease by

HK$215,000) as a result of the changes in fair value of available-for-sale investments.
129

46.2.2 Credit risk
HKFRS 7.36 As at 31 December 2008, the Group’s maximum exposure to credit risk which will cause a financial
HKFRS 7.B9 loss to the Group due to failure to discharge an obligation by the counterparties and financial
guarantees provided by the Group is arising from:
• the carrying amount of the respective recognised financial assets as stated in the consolidated
balance sheet; and
• the amount of contingent liabilities in relation to the financial guarantees provided by the Group
as disclosed in note 51.
In order to minimise the credit risk, the management of the Group has delegated a team
responsible for determination of credit limits, credit approvals and other monitoring procedures to
ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the
recoverable amount of each individual trade debt and debt investments at each balance sheet date
to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the
directors of the Company consider that the Group’s credit risk is significantly reduced.
The credit risk on liquid funds is limited because the counterparties are banks with high credit
ratings assigned by international credit-rating agencies.
HKFRS 7.34(c) Other than concentration of credit risk on liquid funds which are deposited with several banks with
high credit ratings, the Group does not have any other significant concentration of credit risk. Trade
receivables consist of a large number of customers, spread across diverse industries and
geographical areas.
HKFRS 7.34(c) The table below shows the credit limit and balance of 6 major counterparties (including liquid funds)
at the balance sheet date using the Standard and Poor’s credit rating symbols.
31/12/2008 31/12/2007
Counterparty Credit Carrying Credit Carrying

Location Rating limit amount limit amount
HK$’000 HK$’000 HK$’000 HK$’000
Solar Bank PRC AA 10,000 7,940 10,000 7,900

AMA Bank Malaysia AA 10,000 4,800 10,000 4,650
North China Limited PRC A 9,000 3,450 9,000 3,360
Asia Win Limited Malaysia A 8,000 2,300 8,000 2,350
Top One Limited Germany B 2,000 1,100 2,000 900
Fortune Holding Limited Italy BB 800 750 800 700
46.2.3 Liquidity risk management
HKFRS 7.33, 39(b) Ultimate responsibility for liquidity risk management rests with the board of directors, which has built
an appropriate liquidity risk management framework for the management of the Group’s short,
medium and long-term funding and liquidity management requirements. The Group manages
liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by
continuously monitoring forecast and actual cash flows and matching the maturity profiles of
financial assets and liabilities.
As at 31 December 2008, the Group has available unutilised overdrafts and short and medium term
bank loan facilities of approximately HK$2 million (2007: HK$1 million) and HK$5 million (2007:
HK$3 million) respectively.
130

Liquidity tables
HKFRS 7.34, 35, The following tables detail the Group’s remaining contractual maturity for its financial liabilities as
39(a) well as derivative and certain non-derivative financial assets which are included in the maturity
analysis provided internally to the key management personnel for the purpose of managing liquidity
risk. For non-derivative financial assets, the tables have been drawn up based on the undiscounted
contractual maturities of the financial assets including interest that will be earned on those assets
except where the Group anticipates that the cash flow will occur in a different period. For non-
derivative financial liabilities, the tables reflect the undiscounted cash flows of financial liabilities
based on the earliest date on which the Group can be required to pay. The tables include both
interest and principal cash flows.
For derivative instruments settle on a net basis, undiscounted net cash inflows/(outflows) are
presented. Whereas they require gross settlement, the undiscounted gross inflows and (outflows)
on these derivatives are shown in the tables.
HKFRS 7.34(a) Note: The tables below include the weighted average interest rate and the presentation of the
corresponding carrying amount in the consolidated balance sheet as an example of
summary quantitative data about exposure to interest rates at the reporting date that an
entity may provide internally to key management personnel.
Total
Weighted Total carrying
average 3 months undiscounted amount
interest Less than to cash as at
rate 1 month 1-3 months 1 year 1-5 years 5+ years flows 31/12/2008
% HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
2008
Non-derivative
financial assets
Equity securities - 548 6,592 4,137 4,403 - 15,680 15,680
Debt securities 6.7% 18 88 4,766 3,000 - 7,872 7,172
Bank balances
and deposits 5.5% 3,208 9,710 5,290 - - 18,208 17,689
Others - 6,133 3,845 6,820 438 - 17,236 17,236
______ ______ ______ ______ ______ ______ ______
9,907 20,235 21,013 7,841 - 58,996 57,777

______ ______ ______ ______ ______ ______ ______
Non-derivative
financial liabilities
Trade and other payables - (7,726) (8,640) - - - (16,366) (16,366)
Borrowings
- fixed rate 7.2% (36) (72) (321) (7,287) - (7,716) (6,000)
- variable rate 8.1% (1,735) (4,825) (22,389) (16,035) (6,898) (51,882) (44,541)
Convertible loan notes 5.5% - - (248) (4,912) - (5,160) (4,144)
Bank overdrafts 6.0% (547) - - - - (547) (538)
Finance lease liability 4.0% (1) (2) (7) (6) - (16) (14)
Financial guarantee
contracts - - - - - - - -
______ ______ ______ ______ ______ ______ ______
(10,045) (13,539) (22,965) (28,240) (6,898) (81,687) (71,603)

______ ______ ______ ______ ______ ______ ______
(138) 6,696 (1,952) (20,399) (6,898) (22,691) (13,826)

______ ______ ______ ______ ______ ______ ______
131

Liquidity tables – continued

Total
Total carrying
3 months undiscounted amount
Less than to cash as at
1 month 1-3 months 1 year 1-5 years 5+ years flows 31/12/2008
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
2008
Derivatives - net settlement
Interest rate swaps 13 38 16 212 - 279 279
Foreign exchange
forward contracts (5) (21) 9 - - (17) (17)
______ ______ ______ ______ ______ ______ ______
8 17 25 212 - 262 262

______ ______ ______ ______ ______ ______ ______
Derivatives - gross settlement

Foreign exchange
forward contracts
- inflow - 6,054 5,077 - - 11,131 11,131
- outflow - (5,811) (5,152) - - (10,963) (10,963)
______ ______ ______ ______ ______ ______ ______
- 243 (75) - - 168 168

______ ______ ______ ______ ______ ______ ______
Total
Weighted Total carrying
average 3 months undiscounted amount
interest Less than to cash as at
rate 1 month 1-3 months 1 year 1-5 years 5+ years flows 31/12/2007
% HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
2007
Non-derivative
financial assets
Equity securities - - 5,817 2,233 3,434 - 11,484 11,484
Debt securities 6.7% 20 1,165 2,630 1,818 - 5,633 5,262
Bank balances
and deposits 4.0% 2,988 8,440 3,673 - - 15,101 14,656
Others - 5,050 4,772 6,120 - - 15,942 15,942
______ ______ ______ ______ ______ ______ ______
8,058 20,194 14,656 5,252 - 48,160 47,344

______ ______ ______ ______ ______ ______ ______
Non-derivative
financial liabilities
Trade and other payables - (8,726) (8,089) (4,408) - - (21,223) (21,223)
Borrowings
- fixed rate 8.1% (14) (28) (120) (2,324) - (2,486) (2,000)
- variable rate 8.2% (7,701) (5,409) (17,389) (30,517) (6,850) (67,866) (54,881)
Bank overdrafts 6.0% (392) - - - - (392) (378)
Finance lease liability 4.5% (5) (10) (43) (44) - (102) (89)
Financial guarantee
contracts - - - - - - - -
______ ______ ______ ______ ______ ______ ______
(16,838) (13,536) (21,960) (32,885) (6,850) (92,069) (78,571)

______ ______ ______ ______ ______ ______ ______
(8,780) 6,658 (7,304) (27,633) (6,850) (43,909) (31,227)

______ ______ ______ ______ ______ ______ ______
132

Liquidity tables - continued

Total
Total carrying
3 months undiscounted amount
Less than to cash as at
1 month 1-3 months 1 year 1-5 years 5+ years flows 31/12/2007
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
2007
Derivatives - net settlement
Interest rate swaps 12 5 20 140 - 177 177
Foreign exchange
forward contracts (10) (15) (9) - - (34) (34)
______ ______ ______ ______ ______ ______ ______
2 (10) 11 140 - 143 143

______ ______ ______ ______ ______ ______ ______
Derivatives - gross settlement

Foreign exchange
forward contracts - -
- inflow - 3,423 5,316 - - 8,739 8,739
- outflow - (3,240) (5,245) - - (8,485) (8,485)
______ ______ ______ ______ ______ ______ ______
- 183 71 - - 254 254

______ ______ ______ ______ ______ ______ ______
At the year end, it was not probable that the counterparty to the financial guarantee contracts will
claim under the contract. Consequently, the carrying amount of financial guarantee contracts of
HK$6,000 (2007: HK$18,000) has not been presented above.
46.3 Fair value of financial instruments
HKFRS 7.27 The fair value of financial assets and financial liabilities are determined as follows:
• the fair value of financial assets and financial liabilities (including derivative instruments) with
standard terms and conditions and traded in active liquid markets are determined with
reference to quoted market bid prices and ask prices respectively; and
• the fair value of other financial assets and financial liabilities (including derivative instruments)
are determined in accordance with generally accepted pricing models based on discounted
cash flow analysis using prices or rates from observable current market transactions as inputs.
For an option-based derivative, the fair value is estimated using option pricing model (for
example, the binomial model).
HKFRS 7.25 Except as detailed in the following table, the directors consider that the carrying amounts of
HKFRS 7.29(a) financial assets and financial liabilities recorded in the consolidated financial statements
approximate their fair values:
2008 2007
Carrying Carrying
amount Fair value amount Fair value
HK$’000 HK$’000 HK$’000 HK$’000
Financial assets
Held-to-maturity investments:
Debt securities 6,863 6,880 5,262 5,273
Finance lease receivables 1,028 1,033 905 923
Financial liabilities
Convertible loan notes 4,144 4,150 - -
Obligations under finance leases 14 13 89 85
Fixed-rate borrowings 6,000 6,023 2,000 2,017
133

HKFRS 3.67 47. Acquisition of subsidiaries
HKFRS 3.67 On 28 July 2008, the Group acquired 100% of the issued share capital of Subsix Limited and
Subseven Limited for considerations of HK$430,000 and HK$792,000 respectively. The amount of
goodwill arising as a result of the acquisition was HK$435,000 in aggregate.
The net assets acquired in the transaction and the goodwill arising are as follows:
HKFRS 3.67 Subsix Limited Subseven Limited

Acquiree’s Acquiree’s
carrying carrying
amount amount Total
before Fair value Fair before Fair value Fair Fair
combination adjustment value combination adjustment value value
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Net assets acquired:
Bank balances and cash 200 - 200 - - - 200

Trade and other receivables 87 - 87 105 - 105 192
Inventories - - - 57 - 57 57
In-process R&D - - - - - - -
Plant and equipment 50 35 85 312 57 369 454
Trade and other payables (23) - (23) (35) - (35) (58)
Deferred tax liabilities (2) (2) (4) - (9) (9) (13)
Contingent liabilities - (45) (45) - - - (45)
______ ______ ______ ______ ______ ______ ______
312 (12) 300 439 48 487 787

______ ______ ______ ______ ______ ______
Goodwill 435
______
1,222
______
HKFRS 3.67 Total consideration satisfied by:

HKAS 7.40
Cash 822
Freehold land and buildings 400
_______
1,222
_______
Net cash outflow arising on acquisition:
Cash consideration paid (822)

Bank balances and cash acquired 200
_______
(622)
_______
HKFRS 3.67 Goodwill arose in the business combinations because the cost of the combinations included a
premium paid to acquire Subsix Limited. In addition, the consideration paid for the combinations
effectively included amounts in relation to the benefit of expected synergies, revenue growth, future
market development and the assembled workforce of Subsix Limited and Subseven Limited. These
benefits are not recognised separately from goodwill as the future economic benefits arising from
them cannot be reliably measured.
134

HKFRS 3.67 Subsix Limited and Subseven Limited contributed HK$35,000 and HK$13,000 to the Group’s profit
for the period between the date of acquisition and the balance sheet date respectively.
HKFRS 3.70 If the acquisition had been completed on 1 January 2008, total group revenue for the year would
have been HK$146.9 million, and profit for the year would have been HK$27.6 million. The
proforma information is for illustrative purposes only and is not necessarily an indication of revenue
and results of the Group that actually would have been achieved had the acquisition been
completed on 1 January 2008, nor is it intended to be a projection of future results.
135

48. Disposal of a subsidiary
HKFRS 5.41(a) The Group discontinued its bicycle business operations at the time of disposal of its subsidiary, Sub
A Ltd. The net assets of Sub A Ltd. at the date of disposal were as follows:
2008
HK$’000
HKAS 7.40(d) Net assets disposed of:
Property, plant and equipment 5,662

Inventories 2,756
Trade and other receivables 1,074
HKAS 7.40(c) Bank balances and cash 288
Trade and other payables (909)
Borrowings (4,342)
Deferred tax liabilities (615)
_______
3,914
Attributable goodwill 3,080
Release of translation reserve (120)
_______
6,874
HKAS 7.40(a) Gain on disposal 1,940
_______
HKAS 7.40(b) Total consideration 8,814

_______
Satisfied by:
Cash 7,854
Deferred consideration (note 34) 960
_______
8,814
_______
HKAS 7.42 Net cash inflow arising on disposal:
Cash consideration 7,854

Bank balances and cash disposed of (288)
_______
7,566
_______
The impact of Sub A Ltd. on the Group’s results and cash flows in the current and prior years are
disclosed in note 11.
136

49. Cash and cash equivalents
HKAS 7.45 For the purposes of the cash flow statement, cash and cash equivalents include cash on hand and
in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash
and cash equivalents at the end of the financial year as shown in the cash flow statement can be
reconciled to the related items in the consolidated balance sheet as follows:
2008 2007
HK$’000 HK$’000
Bank balances and cash 18,199 17,778

Bank overdrafts (538) (378)
_______ _______
17,661 17,400
Cash and cash equivalents included in a disposal
group held for sale (note 12) 175 -
_______ _______
17,836 17,400
_______ _______
50. Non-cash transactions
HKAS 7.43 During the year ended 31 December 2008, the Group disposed of property, plant and equipment
with an aggregate fair value of HK$0.4 million to acquire the subsidiaries indicated in note 47. This
disposal is not reflected in the consolidated cash flow statement.
During the year ended 31 December 2007, the Group acquired an equipment amounted to
HK$40,000 under a finance lease.
137

HKAS 37.86 51. Contingent liabilities and contingent assets

Sch 10:12(5)
2008 2007
HK$’000 HK$’000
Contingent liabilities
Court proceedings (Note 1) - -

_______ _______
HKAS 31.54(a) Contingent liabilities incurred by the Group

arising from interests in joint ventures (Note 2) 110 116
_______ _______
Financial guarantees given to banks (Note 3) 970 1,050

_______ _______
Contingent assets
HKAS 37.89 Faulty goods claim (Note 4) 140 -

_______ _______
Notes:
1) A subsidiary of the Group is a defendant in a legal action involving the alleged failure of
the subsidiary to supply goods in accordance with the terms of contract. The directors
believe, based on legal advice, that the action can be successfully defended and therefore
no losses (including claims for costs) will be incurred. The legal claim is expected to be
settled in the course of the next eighteen months.
2) A number of contingent liabilities have arisen as a result of the Group’s interests in joint
ventures. The amount disclosed represents the aggregate amount of such contingent
liabilities for which the Group as an investor is liable. The extent to which an outflow of
funds will be required is dependent on the future operations of the joint ventures being
more or less favourable than currently expected. The Group is not contingently liable for
the liabilities of other venturers in its joint ventures.
3) This represents the aggregate amounts that could be required to be paid if the guarantees
were called upon in entirety, of which HK$0.5 million (2007: HK$0.55 million) has been
utilised by the bank's borrowers. As at balance sheet date, an amount of HK$6,000 (2007:
HK$18,000) has been recognised in the consolidated balance sheet as liabilities.
4) A subsidiary of the Group has a claim outstanding against a supplier for the supply of
faulty products. Based on negotiations to date the directors believe that it is probable that
their claim will be successful and that compensation of HK$0.14 million will be recovered.
138

52. Operating leases
The Group as lessee
2008 2007
HK$’000 HK$’000
Minimum lease payments paid under operating

leases during the period:
HKAS 17.35(c) Premises 2,008 2,092
Sch 10:13(1)(i) Other assets [describe] - -
_______ _______
2,008 2,092
_______ _______
HKAS 17.35(a) At the balance sheet date, the Group had commitments for future minimum lease payments under
non-cancellable operating leases which fall due as follows:
2008 2007
HK$’000 HK$’000
Within one year 1,734 1,908

In the second to fifth years inclusive 3,568 4,336
Over five years 1,618 2,526
_______ _______
6,920 8,770
_______ _______
HKAS 17.35(d) Operating leases relate to warehouse facilities with lease terms of between 3 to 7 years (2007: 2 to
7 years), with an option to extend for a further 3 years. All operating lease contracts contain market
review clauses in the event that the Group exercises its option to renew. The Group does not have
an option to purchase the leased asset at the expiry of the lease period.
The Group as lessor
HKAS 17.56(c) Property rental income earned during the year was HK$11,000 (2007: HK$16,000). All of the
Group’s investment properties are held for rental purposes. They are expected to generate rental
yields of 7% on an ongoing basis. All of the properties held have committed tenants for the next 4
years.
HKAS 17.56(a) At the balance sheet date, the Group had contracted with tenants for the following future minimum
lease payments:
2008 2007
HK$’000 HK$’000
Within one year 10 18

In the second to fifth year inclusive 44 22
After five years - -
_______ _______
54 40
_______ _______
139

53. Commitments
2008 2007
HK$’000 HK$’000
HKAS 16.74(c) Commitments for the acquisition of

Sch 10:12(6) property, plant and equipment 4,856 6,010
_______ _______
HKAS 40.75(h) In addition, the Group has entered into a contract for the management and maintenance of its
investment properties for the next 5 years, which will give rise to an annual charge of HK$3,500
(2007: HK$3,250).
54. Pledged of assets
Assets with the following carrying amounts have been pledged to secure borrowings of the Group
(see note 39):
2008 2007
HK$’000 HK$’000
HKAS 16.74(a) Freehold land and buildings 21,054 25,851

Investment properties 136 132
HKFRS 7.14(a) Trade receivables 946 -
HKFRS 7.14(a) Bank deposits 2,000 2,000
_______ _______
24,136 27,983
_______ _______
In addition, the Group’s obligations under finance leases (see note 40) are secured by the lessors’
title to the leased assets, which have a carrying amount of HK$18,000 (2007: HK$36,000).
140

55. Share-based payment transactions
THE COMPANY
HKFRS 2.45(a) The Company’s share option scheme (the “Scheme”), was adopted pursuant to a resolution passed
LR 17.09 on 28 November 2000 for the primary purpose of providing incentives to directors and eligible
GR 23.09 employees, and will expire on 27 November 2010. Under the Scheme, the Board of Directors of the
Company may grant options to eligible employees, including directors of the Company and its
subsidiaries, to subscribe for shares in the Company.
At 31 December 2008, the number of shares in respect of which options had been granted and
remained outstanding under the Scheme was 181,000 (2007: 275,000), representing 1.1% (2007:
1.2%) of the shares of the Company in issue at that date. The total number of shares in respect of
which options may be granted under the Scheme is not permitted to exceed 10% of the shares of
the Company in issue at any point in time, without prior approval from the Company’s shareholders.
The number of shares issued and to be issued in respect of which options granted and may be
granted to any individual in any one year is not permitted to exceed 1% of the shares of the
Company in issue at any point in time, without prior approval from the Company’s shareholders.
Options granted to independent non-executive directors in excess of 0.1% of the Company’s share
capital or with a value in excess of HK$5 million must be approved in advance by the Company’s
shareholders.
No consideration is payable on the grant of an option. Options may be exercised at any time from
the date of grant of the share option to the second anniversary of the date of grant. The exercise
price is determined by the directors of the Company, and will not be less than the higher of (i) the
closing price of the Company’s shares on the date of grant; (ii) the average closing price of the
shares for the five business days immediately preceding the date of grant; and (iii) the nominal
value of the Company’s shares.
HKFRS 2.45(d) Details of specific categories of options are as follows:
Date Exercise Exercise Fair value at

Option type of grant period price grant date
HK$ HK$
2007A 31/03/07 31/03/07 to 30/03/09 1.15 0.95

2007B 30/09/07 30/09/07 t0 29/09/09 1.30 0.85
2008 31/03/08 31/03/08 to 30/03/10 3.15 0.99
HKFRS 2.46, 47(a) In accordance with the terms of the share-based arrangement, options issued during the financial
LR 17.08 year ended 31 December 2007, and 31 December 2008, vested at the date of grant.
GR 23.08
The fair value of the share options granted during the financial year is HK$0.99 (2007: HK$0.95 and
HK$0.85) each. Options were priced using a binomial option pricing model. Where relevant, the
expected life used in the model has been adjusted based on management’s best estimate for the
effects of non-transferability, exercise restrictions (including the probability of meeting market
conditions attached to the option), and behavioural considerations. Expected volatility is based on
the historical share price volatility over the past 5 years. To allow for the effects of early exercise, it
was assumed that executives and senior employees would exercise the options after vesting date
when the share price was two and a half times the exercise price.
141

Inputs into the model
Option type
2007A 2007B 2008
Grant date share price 1.14 1.27 3.15

Exercise price 1.15 1.30 3.15
Expected volatility 70.20% 70.40% 56.10%
Option life 2 years 2 years 2 years
Dividend yield 13.27% 13.12% 13.00%
Risk-free interest rate 5.13% 5.14% 5.50%
Other [describe] - - -
HKFRS 2.47(a) Expected volatility was determined by using the historical volatility of the Company’s share price
over the previous two years.
LR 17.08 Note 4 The Binomial model has been used to estimate the fair value of the options. The variables and
GR 23.08 Note 4 assumptions used in computing the fair value of the share options are based on the directors’ best
estimate. The value of an option varies with different variables of certain subjective assumptions.
HKFRS 2.45(b) The following table discloses movements of the Company’s share options held by employees and
LR 17.07 directors during the year.
GR 23.07
Option at during during during during at
type 1/1/2008 the year the year the year the year 31/12/2008
2007A 125,000 - (125,000) - - -

2007B 150,000 - (150,000) - - -
2008 - 220,000 (39,000) - - 181,000
_______ _______ _______ _______ _______ _______
275,000 220,000 (314,000) - - 181,000

_______ _______ _______ _______ _______ _______
Exercisable at the
end of the year 181,000
_______
Exercise price HK$1.23 HK$3.15 HK$1.47 - - HK$3.15

_______ _______ _______ _______ _______ _______
The following table discloses movements of the Company’s share options held by employees and
directors during prior year:

2007A - 125,000 - - - 125,000

2007B - 150,000 - - - 150,000
_______ _______ _______ _______ _______ _______
- 275,000 - - - 275,000
_______ _______ _______ _______ _______ _______
Exercisable at the
_______
Exercise price - HK$1.23 - - - HK$1.23

_______ _______ _______ _______ _______ _______
142

HKFRS 2.45(c) The following share options granted under the employee share option plan were exercised during
LR 17.07 the financial year:
GR 23.07
Number Share price at
Options type exercised Exercise date exercise date
HK$
2007A 30,000 05/01/08 2.50

2007A 45,000 31/01/08 2.25
2007A 50,000 15/03/08 3.00
2007B 65,000 03/07/08 2.95
2007B 85,000 28/08/08 2.75
2008 39,000 15/04/08 3.50
_______
314,000
_______
THE SUBSIDIARY
HKFRS 2.45(a) A subsidiary of the Company, Kowloon Limited (the “Subsidiary”) also operates a share option
LR 17.09 scheme (the “Subsidiary’s Scheme”). The Subsidiary’s Scheme was adopted pursuant to a
GR 23.09 resolution passed on 17 May 2001 for the primary purpose of providing incentives to directors and
eligible employees of the Subsidiary, and will expire on 16 May 2011. Under the Subsidiary’s
Scheme, the board of directors of the Subsidiary may grant options to eligible employees, including
directors of the Subsidiary, to subscribe for shares in the Subsidiary.
At 31 December 2008, the number of shares in respect of which options had been granted and
remained outstanding under the Subsidiary’s Scheme was 746,000 (2007: 746,000), representing
4% (2007: 4%) of the shares of the Subsidiary in issue at that date. The total number of shares in
respect of which options may be granted under the Subsidiary’s Scheme is not permitted to exceed
10% of the shares of the Subsidiary in issue at any point in time, without prior approval from the
Subsidiary’s shareholders. The number of shares issued and to be issued in respect of which
options granted and may be granted to any individual in any one year is not permitted to exceed 1%
of the shares of the Subsidiary in issue at any point in time, without prior approval from the
Subsidiary’s shareholders. Options granted to independent non-executive directors of the
Subsidiary in excess of 0.1% of the Subsidiary’s share capital or with a value in excess of HK$ 5
million must be approved in advance by the Subsidiary’s shareholders.
No consideration is payable on the grant of an option. Options may be exercised at any time from
the date of grant of the share option to the second anniversary of the date of grant. The exercise
price is determined by the directors of the Subsidiary, and will not be less than the higher of (i) the
closing price of the Subsidiary’s shares on the date of grant; (ii) the average closing price of the
shares for the five business days immediately preceding the date of grant; and (iii) the nominal
value of the Subsidiary’s share.
HKFRS 2.45(d) Details of the options are as follows:
Date Exercise Exercise Fair value at

Option type of grant period price grant date
HK$ HK$
2007 01/04/07 01/04/07 to 31/03/09 1.32 0.67
HKFRS 2.46, 47(a) In accordance with the terms of the Subsidiary’s share-based arrangement, options issued during
LR 17.08 the year ended 31 December 2007 vested at the date of grant.
GR 23.08
143

The fair value of the share options granted for the financial year ended 31 December 2007 is
HK$0.67 each. Options were priced using the binomial option pricing model. Where relevant, the
expected life used in the model has been adjusted based on management’s best estimate for the
effects of non-transferability, exercise restrictions (including the probability of meeting market
conditions attached to the option), and behavioural considerations. Expected volatility is based on
the historical share price volatility over the past 5 years.
Inputs into the model
Option type
2007
Grant date share price 1.32

Exercise price 1.32
Expected volatility 60.70%
Option life 2 years
Dividend yield 2.38%
Risk-free interest rate 5.25%
Other [describe] -
LR 17.08 Note 4 The binomial model has been used to estimate the fair value of the options. The variables and
GR 23.08 Note 4 assumptions used in computing the fair value of the share options are based on the directors’ best
estimate. The value of an option varies with different variables of certain subjective assumptions.
HKFRS 2.45(b) The following table discloses movements of the Subsidiary’s share options held by employees and
LR 17.07 directors of the Subsidiary during the year:
GR 23.07
2007 746,000 - - - - 746,000

_______ _______ _______ _______ _______ _______
Exercisable at the
_______
Exercise price HK$1.32 - - - - HK$1.32

_______ _______ _______ _______ _______ _______
The following table discloses movements of the Subsidiary’s share options held by employees and
directors of the Subsidiary during the year:

2007 - 746,000 - - - 746,000

_______ _______ _______ _______ _______ _______
Exercisable at the
_______
Exercise price - HK$1.32 - - - HK$1.32

_______ _______ _______ _______ _______ _______
HKFRS 2.51(a) The Group recognised total expense of HK$218,000 for the year ended 31 December 2008 (2007:
HKFRS 2.50 HK$746,000), comprising HK$218,000 (2007: HK$246,000) and nil (2007: HK$500,000) in relation
to share options granted by the Company and the Subsidiary respectively.
144

56. Retirement benefit plans
Defined contribution plan
App 16.26(1),(2) The Group operates a Mandatory Provident Fund Scheme for all qualifying employees in Hong
GR 18.34(1),(2) Kong. The assets of the plans are held separately from those of the Group in funds under the
control of trustees.
The employees of the Group’s subsidiary in the PRC are members of a state-managed retirement
benefit plan operated by the government of the PRC. The subsidiary is required to contribute a
specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The
only obligation of the Group with respect to the retirement benefit plan is to make the specified
contributions.
HKAS 19.46 The total expense recognised in the consolidated income statement of HK$160,000 (2007:
HK$148,000) represents contributions payable to these plans by the Group at rates specified in the
rules of the plans. As at 31 December 2008, contributions of HK$8,000 (2007: HK$2,000) due in
respect of the year ended 31 December 2008 had not been paid over to the plans. The amounts
were paid over subsequent to the balance sheet date.
Defined benefit plan
HKAS 19.120A(b) The Group operates funded defined benefit plans for qualifying employees of its subsidiaries in
App 16.26(1),(2) Malaysia. Under the plans, the employees are entitled to retirement benefits varying between 40%
GR 18.34(1),(2) and 45% of final salary on attainment of a retirement age of 65. No other post-retirement benefits
are provided to these employees.
App 16.26(5) The most recent actuarial valuations of plan assets and the present value of the defined benefit
GR 18.34(5) obligation were carried out at 31 December 2008 by Mr. F.G. Ho, Fellow of the Institute of Actuaries
of A Land. The present value of the defined benefit obligation, and the related current service cost
and past service cost, were measured using the projected unit credit method.
HKAS 19.120A(n) The principal assumptions used for the purposes of the actuarial valuations were as follows:
2008 2007
% %
Discount rate 5.52 5.20

Expected return on plan assets 12.08 10.97
Expected rate of salary increase 5.00 5.00
Expected return on reimbursement rights - -
App 16.25(5) The actuarial valuation showed that the market value of plan assets was HK$4.2 million (2007:
GR 18.34(5) HK$4.3 million) and that the actuarial value of these assets represented 71% (2007: 75%) of the
benefits that had accrued to members. The shortfall of HK$1.7 million (2007: HK$1.5 million) is to
be cleared over the estimated remaining service period of 15 years.
145

HKAS 19.120A(g) Amounts recognised in profit or loss in respect of these defined benefit plans are as follows:
2008 2007
HK$’000 HK$’000
Current service cost 463 442

Interest on obligation 164 137
Expected return on plan assets (276) (249)
Expected return on reimbursement rights - -
Actuarial losses recognised in the year 235 226
Past service cost - -
Losses (gains) arising from curtailments or settlements - -
Adjustments for restrictions on the defined benefit asset - -
_______ _______
586 556
_______ _______
HKAS 19.120A(g) The charge for the year amounted to HK$586,000 (2007: HK$556,000) is included in the employee
benefits expense in the consolidated income statement. Of the charge for the year, HK$412,000
(2007: HK$402,000) has been included in cost of sales and the remainder in administrative
expenses.
HKAS 19.120A(f) The amount included in the balance sheet arising from the Group’s obligation in respect of its
defined benefit plans is as follows:
2008 2007
HK$’000 HK$’000
HKAS 19.120A(d) Present value of funded defined benefit obligation 5,905 5,808
Fair value of plan assets (4,202) (4,326)
_______ _______
1,703 1,482
HKAS 19.120A(d) Present value of unfunded defined benefit obligation - -
_______ _______
Deficit 1,703 1,482

Net actuarial gains and losses not recognised (873) (1,098)
Past service cost not yet recognised (322) (32)
Restrictions on asset recognised - -
Fair value of reimbursement rights recognised as an asset - -
_______ _______
Net liability arising from defined benefit obligation 508 352

_______ _______
146

HKAS 19.120A(c) Movements in the present value of the defined benefit obligations in the current year were as
follows:
2008 2007
HK$’000 HK$’000
At 1 January 5,808 5,814

Current service cost 463 442
Interest cost 164 137
Contributions from plan participants - -
Actuarial losses 230 135
Past service cost - -
Losses/(gains) on curtailments - -
Liabilities extinguished on settlements - -
Liabilities assumed in a business combination - -
Exchange differences on foreign plans - -
Benefits paid (760) (720)
_______ _______
At 31 December 5,905 5,808

_______ _______
HKAS 19.120A(e) Movements in the fair value of the plan assets in the current year were as follows:
2008 2007
HK$’000 HK$’000
At 1 January 4,326 4,788

Expected return on plan assets 276 249
Actuarial gains(losses) 220 (91)
Exchange differences on foreign plans - -
Contributions from the employer 140 100
Contributions from plan participants - -
Benefits paid (760) (720)
Assets acquired in a business combination - -
Assets distributed on settlements - -
_______ _______
At 31 December 4,202 4,326

_______ _______
147

HKAS 19.120A The major categories of plan assets, and the expected rate of return at the balance sheet date for
(j),(l) each category, are as follows:
Expected return Fair value of plan assets

2008 2007 31/12/2008 31/12/2007
% % HK$’000 HK$’000
Equity instruments 15.01 12.03 1,026 986

Debt instruments 9.59 7.49 1,980 1,850
Property 12.21 12.76 1,196 1,490
_______ _______ _______ _______
Weighted average
expected return 12.08 10.97
_______ _______
4,202 4,326
_______ _______
HKAS 19.120A(l) The overall expected rate of return is a weighted average of the expected returns of the various
categories of plan assets held. The directors’ assessment of the expected return is based on
historical return trends and analysts’ predictions of the market for the asset in the next twelve
months.
HKAS 19.120A(m) The actual return on plan assets was HK$0.72 million (2007: HK$0.354 million).
HKAS 19.120A(k) The plan assets include ordinary shares of the Company with a fair value of HK$0.380 million
(2007: HK$0.252 million) and property occupied by a subsidiary of Hong Kong GAAP Limited with a
fair value of HK$0.622 million (2007: HK$0.620 million).
HKAS 19.120A(p) The history of experience adjustments is as follows:
2008 2007 2006 2005

HK$’000 HK$’000 HK$’000 HK$’000
Present value of defined

benefit obligation 5,905 5,808 5,814 4,113
Fair value of plan assets (4,202) (4,326) (4,788) (3,298)
_______ _______ _______ _______
Deficit 1,703 1,482 1,026 815
Experience adjustments on
plan liabilities 230 135 210 193
Experience adjustments on
plan assets 220 (91) 156 148
HKAS 19.120A(q) The Group expects to make a contribution of HK$0.44 million (2007: HK$0.44 million) to the defined
benefit plans during the next financial year.
148

57. Related party transactions
HKAS 24.4 During the year, the Group entered into the following transactions with related parties:
HKAS 24.17,18
Amounts due from Amounts due to
Trade sales Trade purchases related parties related parties
2008 2007 2008 2007 2008 2007 2008 2007
Fellow
subsidiaries 693 582 439 427 209 197 231 139
______ ______ ______ ______ ______ ______ ______ ______
Holding
company 1,299 981 897 883 398 293 149 78
______ ______ ______ ______ ______ ______ ______ ______
Associates 398 291 - - 29 142 - -

______ ______ ______ ______ ______ ______ ______ ______
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been
given or received. No expense has been recognised in the period for bad or doubtful debts in
respect of the amounts due from related parties.
Loans from / to related parties
2008 2007
HK$’000 HK$’000
Loan to associates (note 32) 2,981 2,981

Amounts due from directors (note 33) 656 107
_______ _______
3,637 3,088
_______ _______
Loans from fellow subsidiaries (note 39) 12,917 34,124

_______ _______
In addition to the above, the Group has entered into the following related party transactions with
companies controlled by Mr. Gary D.K Wong, a director of the Company:
1) the Group received certain consultancy services, for which a management fee of HK$240,000
(2007: HK$240,000) was charged; and
2) the Group acquired a property in Shatin at a consideration of HK$ 1 million.
149

HKAS 24.16 Compensation of key management personnel
The remuneration of directors and other members of key management during the year was as
follows:
2008 2007
HK$’000 HK$’000
Short-term benefits 2,368 2,027

Post-employment benefits 60 139
Other long-term benefits 115 176
Share-based payments 218 246
_______ _______
2,761 2,588
_______ _______
The remuneration of directors and key executives is determined by the remuneration committee
having regard to the performance of individuals and market trends.
s128(1),(2) 58. Particulars of principal subsidiaries of the Company

App 16.9(1),(2)
GR 18.10(1),(2) Place/ Proportion
country of Proportion of voting
incorporation Paid up/ ownership power held
Name of or registration Class of registered interest held by the Principal
subsidiary /operations share held share capital by the Company Company activities
Directly Indirectly
2008 2007 2008 2007 2008 2007
% % % % % %
Kowloon Limited Hong Kong Ordinary HK$50,000,000 - - 56 56 56 56 Manufacture

and sale
of widgets
Subone Limited PRC Registered RMB5,000,000 - - 100 100 100 100 Manufacture
and sale
of toys
Subtwo Limited Malaysia Ordinary USD1,000 - - 100 100 100 100 Manufacture
and sales
of widgets
Subthree Limited Hong Kong Ordinary HK$100 - - 100 100 100 100 Construction
Subfour Limited British Virgin Ordinary USD100 100 100 - - 100 100 Investment
Island holding
Subsix Limited Singapore Ordinary USD5,000 - - 100 - 100 - e-business

solutions
Subseven Limited PRC Registered RMB10,000,000 - - 100 - 100 - e-business

solutions
Sub A Limited Singapore Ordinary HK$100 - - - 100 - 100 Manufacture

of bicycles
s128(4)&(5) The above table lists the subsidiaries of the Group which, in the opinion of the directors, principally
App 16 Note 9.2 affected the results or assets of the Group. To give details of other subsidiaries would, in the
GR 18.10 opinion of the directors, result in particulars of excessive length.
Subone Limited and Subseven Limited are wholly foreign owned enterprises.
150

59. Balance sheet information of the Company
Balance sheet information of the Company at the balance sheet date includes:
2008 2007
HK$’000 HK$’000
Unlisted investments in subsidiaries 133,030 133,030

Bank balances and cash 2,000 4,000
Other current assets 3,610 3,210
_______ _______
Total assets 138,640 140,240

_______ _______
Share capital (note 42) 17,819 23,005

Reserves 120,821 117,235
_______ _______
Total equity 138,640 140,240

_______ _______
Note: Section 123(1) and 126(1) of the Companies Ordinance state that both the company’s
balance sheet and the consolidated balance sheet of a company incorporated in Hong
Kong must give a true and fair view. In order to comply with the requirements of the Hong
Kong Companies Ordinance, a Hong Kong incorporated company may present the
company’s balance sheet as a primary statement (together with all relevant notes) within
the consolidated financial statements.
HKAS 10.19 60. Post balance sheet events

HKAS 10.21
On 18 January 2009, the premises of Subthree Limited were seriously damaged by fire. Insurance
claims are in process, but the cost of refurbishment is currently expected to exceed the amount that
will be reimbursed by HK$8.3 million.
151
App 16.19 Financial summary

GR 18.33
For the year ended 31 December
2004 2005 2006 2007 2008
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
RESULTS
Revenue 146,904 118,675 125,849 151,840 140,918

Cost of sales (90,505) (73,634) (75,706) (91,840) (87,899)
_______ _______ _______ _______ _______
Gross profit 56,399 45,041 50,143 60,000 53,019

Investment and other income 692 784 1,626 3,330 4,339
Other gains and losses 896 1,620 1,431 446 1,462
Distribution and selling
expenses (4,891) (3,214) (4,216) (4,600) (5,087)
Administrative expenses (13,246) (12,160) (14,032) (19,992) (16,513)
Share of profits of associates - - - 1,589 1,186
Finance costs (4,321) (3,610) (2,480) (6,023) (5,034)
Other expenses (1,230) (896) (1,645) (2,612) (2,656)
_______ _______ _______ _______ _______
Profit before tax 34,299 27,565 30,827 32,138 30,716

Income tax expense (12,432) (10,121) (11,201) (11,801) (11,650)
_______ _______ _______ _______ _______
Profit for the year from

continuing operations 21,867 17,444 19,626 20,337 19,066
Profit for the year from
discontinued operations - - - 9,995 8,310
_______ _______ _______ _______ _______
21,867 17,444 19,626 30,332 27,376

_______ _______ _______ _______ _______
Attributable to:
Equity holders of the Company 21,841 17,390 19,529 27,569 23,376
Minority interests 26 54 97 2,763 4,000
_______ _______ _______ _______ ______
21,867 17,444 19,626 30,332 27,376

_______ _______ _______ _______ _______
Earnings per share
Basic (HK cents) 112.8¢ 109.6¢ 120.3¢ 119.8¢ 104.1¢
Diluted (HK cents) 110.7¢ 101.4¢ 118.2¢ 119.1¢ 98.1¢
_______ _______ _______ _______ _______
152
Financial Summary-continued
As at 31 December
2004 2005 2006 2007 2008
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
ASSETS AND LIABILITIES
Total Assets 216,847 202,839 236,835 262,152 264,172

Total Liabilities (91,001) (75,865) (86,214) (95,113) (93,132)
_______ _______ _______ _______ _______
125,846 126,974 150,621 167,039 171,040

_______ _______ _______ _______ _______
Equity attributable to equity

holders of the Company 115,321 117,303 140,010 147,034 147,035
Share options reserve of
a subsidiary - - - 500 500
Minority interests 10,525 9,671 10,611 19,505 23,505
_______ _______ _______ _______ _______
125,846 126,974 150,621 167,039 171,040

_______ _______ _______ _______ _______
153
App 16.23 PARTICULARS OF MAJOR INVESTMENT PROPERTIES AT 31 DECEMBER 2008

GR 18.23
PROPERTIES HELD FOR INVESTMENT
Location Type Lease Term
Carpark Lot 21, Carpark Medium-term Lease

XYZ Plaza,
10 XYZ Road,
Hong Kong
Flat 1402, Commercial Medium-term Lease

Dragon Garden
21 Flying Road,
Hong Kong
154
Hong Kong Financial Reporting Standards -
Illustrative Financial Statements 2008 aims
to provide useful guidance to preparers of
Hong Kong Financial
financial statements reporting under Hong
Kong Financial Reporting Standards (HKFRS).
Reporting Standards
Hong Kong Financial Reporting Standards – Illustrative Financial Statements 2008

This book contains an illustrative 2008 annual
report prepared by a fictitious reporting entity
(listed in Hong Kong) in accordance with HKFRS
and the disclosure requirements of Hong Kong
Companies Ordinance and Listing Rules.
Furthermore, this book provides a summary Illustrative Financial

of HKFRS which are effective for the financial
year ended 31 December 2008 and those
Statements 2008
that are issued but not yet effective and their
Hong Kong Financial potential impacts, together with a brief update
on Listing Rules and other relevant regulatory
Reporting Standards requirements.
The Illustrative Financial Statements 2008

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requirements in Hong Kong. To keep up to
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Illustrative Financial developments that will shape Hong Kong
Statements 2008 standard setting in future, please visit the
Deloitte IAS PLUS website (www.iasplus.com).
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Furthermore, this book provides a summary Illustrative Financial

The Illustrative Financial Statements 2008

TAX AND ACCOUNTING SERIES 1794H

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Illustrative Financial Statements 2008

©2009 Deloitte Touche Tohmatsu. All rights reserved.

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• HK(IFRIC) - Int 11 HKFRS 2 – Group and Treasury Share Transactions

What’s new for 2008 financial statements and beyond?

I. Hong Kong Financial Reporting Standards 5

- an overview of new and revised standards, amendments and interpretations 6

- disclosing the fair value of financial instruments in markets that are no 20

II. Regulatory Updates 23

Illustrative Financial Statements 25

AG = Accounting Guideline issued by the HKICPA

App = Appendix to the Listing Rules

EPS = Earnings per Share

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HKSA(s) = Hong Kong Standard(s) on Auditing issued by the HKICPA

HK (SIC)-Int = HK (SIC) Interpretation

IAS(s) = International Accounting Standard(s)

IASB = International Accounting Standards Board

IFRS(s) = International Financial Reporting Standard(s)

MD&A = Management Discussion and Analysis

PN = Practice Note to the Listing Rules

s = Section Reference, Hong Kong Companies Ordinance

Sch 10 = Companies Ordinance, Tenth Schedule

SFO = Securities and Futures Ordinance

SEHK = The Stock Exchange of Hong Kong Limited

What’s new for 2008 financial statements and beyond?

1. An overview of new and revised standards, amendments and interpretations

Amendments to standards Effective for accounting Application

New interpretations Effective for Application

HK (IFRIC) - Int 12 Service Concession Arrangements 1 January 2008 Retrospective

New standard Effective for accounting Application

HKFRS 8 Operating Segments 1 January 2009 Retrospective

Amendments to standards Effective for accounting Application

Improvements to HKFRSs 1 January 2009 except Retrospective/

Amendments to HKFRS 1 First-time Adoption of HKFRSs and 1 January 2009 Prospective

Amendment to HKFRS 2 Share-based Payment – Vesting 1 January 2009 Retrospective

Amendments to HKAS 32 Financial Instruments: Presentation and 1 January 2009 Retrospective,

Amendment to HKAS 39 Financial Instruments: Recognition and 1 July 2009 Retrospective

Revised standards Effective for accounting Application

HKFRS 3 (Revised) Business Combinations 1 July 2009 Prospective,

HKAS 1 (Revised) Presentation of Financial Statements 1 January 2009 Retrospective

HKAS 23 (Revised) Borrowing Costs 1 January 2009 Prospective,

HKAS 27 (Revised) Consolidated and Separate Financial 1 July 2009 Prospective,

New interpretations Effective for Application

HK (IFRIC) - Int 13 Customer Loyalty Programmes 1 July 2008 Retrospective

HK (IFRIC) - Int 16 Hedges of a Net Investment in a Foreign 1 October 2008 Prospective,

HK (IFRIC) - Int 17 Distribution of Non-cash Assets to Owners 1 July 2009 Prospective

Summaries and potential impacts